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Gold smashed through the $1,000 an ounce mark on Tuesday, prompting goldbugs to come out of the woodwork and start exclaiming that bullion will soon test the all-time high of $1,030.8.
The gold price has climbed more than 20 per cent in dollar terms since this time last year, and some commentators are predicting that this is just the beginning of what could be a golden period - excuse the pun - for the yellow metal.
However, none of the arguments in favour a push higher provides a compelling reason for private investors to pile into the metal. Let us look at each in turn.
Gold is a hedge against inflation
Many people are worried that measures introduced by Government's worldwide to give their economies a boost - in particular quantitative easing - will work in gold's favour. Although the measures may have pulled us back from the brink of financial collapse there are fears that further down the line they could ignite inflation. Gold is one of the assets that can provide a hedge against rising prices.
Having said that, many commentators think that it could be several years before inflation becomes a concern. The money markets certainly seem to suggest that fears of an imminent spike in inflation may be overdone.
Government bond prices provide an indication of where institutional investors think interest rates will be in the future. Five-year bonds are currently yielding 2.7 per cent. Although this suggests that interest rates and inflation will be considerably higher than they are now, in the scheme of things that doesn't sound something to get too worked up about.
What's more, a lot could happen in the next five years. So, although there could be a nasty inflation scare down the line it doesn't look like a strong enough argument on its own to support backing gold now.
Full Story, go to: Why it may not be time to invest in goldShared via AddThis
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