Is Gold Bullion Set for a Hard Fall?

As gold bullion prices continue to move upwards inexorably in spite of temporary set backs, the question arising in the minds of many investors is whether the metal is overvalued? If it is, then gold prices are set for a hard and sharp fall sometime in the near future. This fear is putting the brakes on gold buying for some investors who are worried about their investment being wiped out entirely if such a fall does come about. However, several analysts have stated their views that gold bullion is not overvalued but, in fact, the current economic scenario supports a further price increase.

Fed Actions are Supportive of Gold Price Hike

The Federal Reserve has paved the way for an increase in gold prices by deciding to continue with quantitative easing. As the QE3 measures continue to stay in place, the market is losing faith in the dollar’s ability to keep its head above water. This is prompting the purchase of gold coins and other forms of gold bullion. Investors are eager to buy gold as a safe haven asset which will hedge their portfolios in case dollar depreciates, eroding the net worth of an equity rich portfolio.

The uncertainties in world economies are only serving to cement this trend as investors continue to lose faith in cash based assets. Gold coins or gold in other physical forms continues to be the preferred choices of asset for wary investors.

The Impact of Excessive Dollar Printing

Analysts also believe that the Fed’s focus on printing more dollar bills ensures that gold cannot be overvalued at this point in time. There are enough fundamental factors to support a growth in gold bullion prices even today. The generous printing of money has only exaggerated the effects of these factors and ensured the presence of ready market to buy gold at prevailing prices no matter how high they go.

Will Money Printing Lead to HyperInflation?

According to Art Cashin, Director of Floor Operations at UBS, the incessant money printing is creating the perfect environment for hyperinflation. He believes that there are several factors in place right now that could result in a domino effect ending with hyperinflation. The main reason why this has not happened already is that the average American investors is still playing a cautious hand and avoiding splurging at all costs. If hyperinflation does become a reality, gold coins and other gold bullion products will gain popularity at an astounding pace.