A potential threat to the gold price?

Unsurprisingly, gold has risen during recent dollar falls. Yet forthcoming events risk dulling the yellow metal's shine somewhat. Paul van Eeden looks at the one thing which could prompt the gold price to drop.

Gold is up $40 an ounce (6.6%) since November 1st and rose $7.38 an ounce just in the last week alone. Since November 1st the Dollar has fallen 4.60% against the Euro, 3.99% against the Pound and 1.71% against the Yen, so it should therefore not come as any surprise to anyone that gold is up in US Dollars. My long-term thesis is that the gold price will rise by about 50% from its current level as the Dollar loses roughly 35% of its exchange rate value.

In more recent commentaries I have also mentioned that I thought base metal prices were way too high, and that a decline in base metals due to falling demand from a slowing US economy (that will impact European, Japanese and Chinese economic growth as well) is the biggest risk to gold that I can see. Were it not for sky-high base metals prices I would once again be essentially 100% invested in gold right now. The risk is that if base metal demand softens, investment funds that had bought base metals as a hedge against the dollar may start selling all their metal holdings, including gold. Of course, I don't know that it will happen, but I do think it's a risk.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
Explore More
MoneyWeek

MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.