Gold Prices Bursting or Correcting?

The usual speculation when any asset class makes a wide swing is part of gold now, as gold prices are in the midst of a huge downward move, and has generated questions on whether or not gold is correcting or it's in the middle of a bubble bursting.

Anyone familiar with gold for a long period of time knows this is nothing more than a correction, as the elements surrounding a bubble haven't yet emerged, and gold prices have a long way to go before they run their course, although it is a good lesson in what factors will eventually bring gold prices back to earth.

One of the major things ultimately stopping the rise of gold prices will be measures put in place to combat inflation: increasing interest rates.

That alone won't completely stop it if other major factors are driving gold prices up, but it would definitely slow it down, and if implemented in most, if not all, major economies, could have a dramatic effect.

That isn't going to happen any time soon though, as the U.S. isn't even close to thinking of raising interest rates in the current economic climate.

Even if China is to increase interest rates like South Korea did on Monday, that won't be enough to pull down gold in the long term, even though it would push gold prices down immediately and give the appearance of a bubble bursting.

Another thing driving gold prices down down, in conjunction with interest rate concerns, is the temporary strengthening of the U.S. dollar. That's all related to the weakened euro because of the renewed focus on the European sovereign debt crisis, which continues to stubbornly hang on.

After the EU bluffs its way through that or throws a bailout bone to Ireland, that will be considered taken care of, even though as Greece had shown yesterday, as it appears there is still corruption in the process, as Greece said they had underestimated the size of their deficit.

Greece isn't exactly so big that working out how big of a deficit they have should be that difficult. They're obviously understating things in hopes of stealing more money from the region to support their socialist practices via unsustainable entitlement programs.

In the end, there hasn't been much that has changed to justify the typical ignorant conclusions, and wishful thinking by some, that gold has ended its historical run. It isn't even close to being the case.

The U.S. dollar will continue its collapse in light of the inflationary policies of the Federal Reserve, the euro isn't considered that important any longer by the international community, physical demand for gold continues to rise, and of course, it's still the best place for safety in the turbulent economic times we live in, which are far from turning around at all.

What may happen in the near term with gold is it'll be much more volatile than usual until the decisions - by Asian countries in particular - as to raising their interest rates to combat inflation come about.

That appears to be priced already into the fall in gold prices, although I think the China factor will be the most devastating impact in the near term.

Once that's over with, gold will resume its assent with little in the way to stop it.