Commodity analyst says gold could hit new highs this year. Weakness of the dollar and inflation are some factors that are likely to drive precious metal prices, he said. When the price of gold rises dramatically over a short period of time, usually because speculators raise prices above their intrinsic value, a gold bubble forms. Therefore, if the interest rates one can earn on a bank account or term deposit increase, then the opportunity cost of owning gold will increase, which should be bearish for the price of gold.
The World Gold Council, the market development organization for the gold industry, recently opined that the commodity will face two key obstacles. Aside from the mid-1980s, when gold fell by 10%, and there was a very small drop between 1993 and 1995, gold prices have tended to rise, often considerably, during periods when the United States Federal Reserve has increased interest rates. The price may fall on a given day, simply because there were more gold sellers than gold buyers on the stock exchanges that day.