Don't panic Mr. Mainwaring!

Recent Gold Price Falls.

I had an email from a concerned reader of my blog whether the recent fall in gold prices is the "sell-off" that I have predicted recently. I can assure you that it's not. The sell-off to manipulate the gold price will be fast and of cliff-edge proportions.

It has to be said that this reader was in the UK, so that explains why the recent fall has occurred. It's not the price of gold that has fallen (although it has very slightly) it's the UK pound strengthening against the dollar.

Let's do some simplistic figures. These are not indicative of current trends, purely easy to understand examples.

First thing to remember, is like almost all commodities on the global markets, gold is traded in US Dollars. (USD).

Let's assume on 1st August 2010 the USD and GBP exchange rate is: 1 GBP = 1.5USD

Also, on this date, 1 ounce of gold equals US$1000

Therefore, on the UK market, 1 ounce of gold is UK£750

Now let's go forward one week.

On 8th August 2010, the exchange rate has changed and it is now 1 GBP = 2 USD (i.e the pound has strengthened against the dollar).

On this date, i ounce of gold, is still US$1000

However, because of the different exchange rate, the cost of 1 ounce in the UK is now only £500.

The perception is that the gold price has fallen (in the UK), however it has remained the same price on the open market. Of course if you hold gold, then it looks a lot worse, but do remember:

The actual gold is still exactly the same, but it is being compared to a fiat currency, so do remember this when you see prices quoted in currencies other than USD, to look deeper.

I hope that gives you an alternative insight into holding gold.

Kieran.