The answer depends upon how you view the U.S. economy and its dollar. It may be way overpriced at $1,800 or way under priced at $3,000. We raised this same question at $1,500 an ounce on 4/19/11, just 4 months ago.
The U.S. economy is crumbling, the politicians in Washington are in gridlock and the U.S. government's debts are skyrocketing. Under these conditions, many investors prefer to hold at least some gold than to exclusively hold U.S. dollars. They also prefer to hold some other currencies such as Swiss Francs and Japanese Yen.
To quote what we said on 4/19/11: "To understand what is happening, it helps to put the price of gold in perspective. In January 1980, as a result of 1979's oil 'shortage' and skyrocketing gas prices, the Soviet invasion of Afghanistan, Iran seizing U.S. hostages and of U.S. high inflation, gold hit a record U.S. $850 an ounce as investors fled to something they viewed as safer than the U.S. dollar. Subsequently, the U.S. economy strengthened, investor confidence returned and the price of gold dropped.
"Right after the horrific events of 9/11, in 2001, gold reached $280 an ounce, up about $6. It's price kept fluctuating in the few hundred dollar an ounce range until the global financial meltdown in 2008, when its price jumped to over $800 and in 2009, to over $900 and while it keeps fluctuating, it has generally been rising since.
"Today, there are well founded fears for the U.S. government's financial viability and that of the Euro Zone as well, while inflation jumps sharply in China and Japan struggles to recover from the disasters that engulfed it. And the U.S. dollar, long considered 'good as gold' is now only as good as the confidence investors have in it. By their gold investments they are giving it a vote of no confidence."
Dick
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