The fundamentals of the gold market will affect the price in an upward direction as gold production continues to hold or fall, while investment demand will grow substantially. Consequently, although the fundamentals of the gold market seemed excellent, the investors' struggle to survive made them sell even their positions in gold and silver. The price of gold in euros and Canadian dollars fell less and recovered faster than gold quoted in US dollars. They have lost attractiveness over the past two years, as investors have opted for exchange-traded funds (ETFs), where there is only one risk to the price of gold, albeit without the guarantee of absolute ownership and physical control.
The attractiveness of gold, free of obligations, nationality and worldwide acceptance, will create a dynamic and growing market for gold and, with it, gold stocks. Jewelry had already started to recover with the fall in the price of gold, but then the impact of the investor crisis—through forced selling by leveraged investors, such as hedge funds, who sold what they could to cover losses in other markets—also affected gold. The GOFO is not the “interest rate” you pay to borrow gold (this rate is also called the “gold lease rate”), but it is closely related to leasing gold. Gold stocks are linked to corporate risk uncertainties, but their profitability increases much more than the price of gold in percentage terms when the price of gold rises.
As Prime Minister of Great Britain, Gordon Brown has done it and is experimenting, sales and conversations about future sales of gold simply undermine the credibility of politicians and central bankers in the face of the rising popularity of gold and the fall in confidence in currencies. You'll know why gold prices are falling, even though the world is on the brink of collapse. As you may know, gold lost its monetary status in 1971, when President Nixon broke all ties with gold. It should even be a signal to take advantage of the temporary discount on gold prices to buy even more gold.
The main reason for the exodus to gold was the great concern faced by asset prices in general. The second chart below shows gold during the same period quoted in US dollars, euros and Canadian dollars (indexed to 100 for comparative purposes).