Gold prices: volatile much?

With dark clouds hovering over the resolution of the European debt crisis, the euro is becoming/ going weak and the dollar is rising, affecting the price of the yellow metal. The Federal Reserves announcement to continue with the present monetary policy acted as a dampener to the already grim investor confidence, which reflected in a 2.3 percent fall in the price of the precious metal, which stood at $ 1,625.30 an ounce on Wednesday However, despite the recent decline of $ 5.65 in the global market, the metal is still valuable and stood at $ 1650.93 an ounce, on the 13th of this month, the lowest price since October 2011. Historically, people have always had faith in the non-diminishing element of golds worth, which seems to the reason this metal has managed to attract investment and maintain its status of "the ultimate safe haven". Malcolm Gissen, founder of Malcolm H. Gissen & Associates and co-manager of the Encompass Fund, supports this belief; according to him, people buy gold as a hedge against uncertainty, which in the present context is the Congresss failure to handle Americas deficit situation. And he believes that "so long as we have complete fear, people will invest in gold, no matter how high prices are." Some, however, are of the view that investors not only consider the uncertainty but also the price of gold-after it reaches a certain threshold, people will not invest in this commodity. Doubts about the "safe investment" nature of the metal have also surfaced in light of the recent price volatility. It has finally dawned upon the investors that the price of gold may not always go up. "Its hard to say what will happen going forward, but we have seen that investors will sell gold once it gets to a level where they feel the price is too much," predicts Oliver Pursche, president of Gary Goldberg Financial Services and co-manager of the GMG Defensive Beta Fund. Experts believe that recent debt events in the developed world and uncertainty of the sovereign debt figures have build up the fear among banks to lend to one another, which has added to the fear of banking system failure. However, this fear has lessened recently, leading to the fall in the gold prices. Going forward, inflation is likely to play a vital role in the shooting up of gold prices. Central Banks throughout the world have kept interest rates at low levels, which may result in inflation; given the supply side (more or less) remains constant, the paper currency will devalue relative to the shiny metal. One way to control gold prices is to increase in the real interest rates, according to Fred Sturm, manager, Ivy Global Natural Resources Fund for Waddell & Reed Ivy Investment Company; however, this solution may not see the light of the day in the coming years owing to the current events in the world and the status of the Central Bank as net buyers of gold (and not sellers). Time will tell what the affects of the dynamics are on the gold price; for now, it seems foolish to ignore the lure of the metal and hold back on such an investment.