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Eight reasons why Gold is going up

Gold is up by 7.6% for the year till date and for the year of
2010, gold ended higher by 30% that saw a decade of gold
rally (on an annual basis) culminating in another one. Let
us see the eight factors driving up the gold prices:

1. Near-zero interest rates in US

On last Wednesday when Federal Reserve decided to keep the interest
rates in a range of zero to 0.25%, gold prices rose higher. The said interest
rate range has been maintained since December 2008.

As long as the US keeps interest rates low, the demand for gold would be
robust and so would be its prices, analysts say.

2. Weak dollar

Weak dollar gives buyers the necessary appetite for gold. On last Friday,
the Comex Gold jumped $25.2 or 1.7%, to touch $1556.4 on weak dollar.
This was the fifth consecutive monthly decline of dollar.

Analysts expect the slump to continue in the future. Gold prices always go
opposite to the US dollar vectors.

3. Global inflation

It would be a cliché to tell that commodity prices are rising around the
globe. And whenever inflation has risen, people have rushed to secure
gold as a hedge.

Metals consultancy GFMS predicts that gold prices will jump past $1,600
this year, driven primarily by fears of high inflation.

4. Weak Europen recovery

The debt crisis in Europe is worrying and may spread to US and Japan,
accoridng to GFMS Ltd  the situation would perk up the demand for gold
further and hence prices could go further up.

5. Central bank buying

The central banks have been on a gold buying spree since 2010. They
became net buyers of gold last year, for the first time in two decades and
added 87 metric tons in official sector purchases by countries including
Sri Lanka, Mauritius and Bolivia.

Russia alone purchased 8 tons of gold in the first quarter. This shopping
frenzy has reportedly added to the price of gold.

6. Asian demand

India and China are bitten by yellow fever. In 2011, the yellow metal
exhibited a robust demand in India. The trend is continuing as per the
World Gold Council report.

In China, the peak season for gold arrives in the first quarter along with
New Year and Chinese New Year holidays. This resulted in consumers
purchasing gold to give away as gifts; particularly in the cities.

In Vietnam, jewellery demand got a fillip in Q1 2011, climbing by more than
5 tons relative to the previous quarter– the Gold Investment digest by
World Gold Council said.

All these factors add to the prices.

7. Chinese rate hike

China has hiked interest rates several times this year to tame domestic
inflation. Naturally, the rally in base metals subsided and what used to go
to copper and other base metals flowed to precious metals like gold and

Gold prices climbed.

8. Normal monsoon

In India normal monsoons have always bode well for farmers. And most of
the farmers living in India turn to gold for investment after a robust harvest,
since most of them do not possess a bank account.

This time around, normal monsoons have been predicted and gold prices
are slated to go up when other factors are considered: Akshaya Tritiya,
marriage season etc.