1)The
gold jewelry demand has hit the lowest level in 20 years, because of
the higher and higher gold price.  High price of gold discourages
people from buying gold jewelry and therefore reduces the demand.  Accordingly the price of gold is supposed to be low. But why is
the price of gold continuing to rise?

2)First
of all, it is always the investment demand to push the price of gold
higher and higher, because gold has long been acting as a store of
value and is a hedge against inflation. With the governments from
all over the world printing money like there is no tomorrow to save
the horrible economy, inflation will be back as a serious issue.
Therefore, it's the right time for a lot of investors to put their
money in commodity. Gold is one of the commodities that a lot of
savvy investors trust, so the price of gold rises. Besides, in the
years filled with unpredictability, gold is not only a commodity to hedge against
inflation but also a hard currency that cannot be printed like all paper money.  It may be
the strongest currency against any other "legal tender" in the world,
therefore its price certainly should be rising.

3)Second
of all, it is because the falling dollar makes the price of gold look
very expensive, because the yellow metal is denominated in dollar.
The more the dollar is printed, the less the currency is valued,
because the supply has been increased. Therefore, the price of gold
should go higher. With the dollar having been printed massively,
the price of gold should not stay at such a low level. It should be
much higher than US$900 per ounce. Right now the price of gold is
low, because a lot of governments, particularly the U.S. government,
do not want to see the price of gold running out of control.  And
yes, gold is a “politically incorrect” investment asset, because
a higher and higher gold price would (1) make the dollar look very
bad, triggering the governments and investors worldwide to question
the U.S. government's capability to handle the economic crisis and
making them lose confidence in dollar as a result; (2) signal serious
inflation and (3) encourage a lot of stock investors to shift their
money from stock markets to gold markets which is not what a lot of
governments want to see.

4)On
December 7, 2000, a lawyer and gold investor named Reginald H. Howe
filed a lawsuit in the United States District Court for the District
of Massachusetts, Boston, Massachusetts against Bank for
International Settlements, Alan Greenspan, Federal Reserve Chairman,
William McDonough, president of Federal Reserve Bank in New York,
J.P. Morgan, Citigroups, Inc, Goldman Sachs Groups, Inc, Deutsche
Bank AG and Lawrence Summers, Secretary of the Treasury for
manipulating the price of gold. The plaintiff, Mr. Howe, in his
complaint, accused the above-mentioned defendants of fixing gold
price from 1994 to the present time(2000). He disclosed that the
manipulative activities in the gold market from 1994 to 2000
orchestrated by government officials acting outside the scope of
their legal or constitutional authority and certain large bullion
banks active in Exchange(“COMEX”) in New York were a typical of
horizontal price fixing in violation of Sherman Act and Securities
Exchange Act.( http://www.goldensextant.com)
Howe claimed that this manipulative scheme appears directed at
three objectives (1) to prevent rising gold prices from sounding a
warning on U.S. inflation;(2) to prevent rising gold prices from
signaling weakness in the international value of the dollar and (3)
to prevent banks and others who have funded themselves by borrowing
gold at low interest rates and are thus short physical gold from
suffering huge losses as a consequence of rising gold prices.

According
to Howe's complaint, in July 1998, Fed Chairman Alan Greenspan,
testifying before the House Banking Committee, stated: “ Nor can
private counterparties restrict supplies of gold, another commodity
whose derivatives are often traded over-the-counter, where central
banks stand ready to lease gold in increasing quantities should the
price rise. “ This statement amounted to a declaration that the
gold price had been and would continue to be controlled. As Fed
Chairman, Alan Greenspan did admit that some central banks lease gold
not to earn a return on it as they often claim, but primarily to
supply physical gold to the bullion banks during periods when strong
demand is pushing up prices.

5)The
International Monetary Fund(IMF) is said to be holding at least 3000
tons of gold. Not long ago, it announced its plan to sell part of
its gold reserve in order to help some countries to solve their
banking and financial difficulties. It is common sense that
publicly announcing to sell a lot of gold or anything in the market
would absolutely negatively affect its market price, because
investors expect that the price of gold would drop with the
increasing supply of gold in the market. If IMF really wants to
sell its gold with good price, it should keep its mouth shut until the
transaction was completed. Was IMF idiot? Absolutely not, but why
did IMF do that?

On May 7,1999, just as gold price threatened to
surge over US$300 per ounce, the British government announced that
the Bank of England, the British central bank, on behalf of the
Exchange Equalisation Account in the British Treasury, would sell 415
tons of gold in a series of public auctions. What motivated the
British government to do that? The British officials offered
unpersuasive explanations of these auctions as an effort to diversify
Britain's international monetary reserve. But British gold reserves
were already low compared to those of other major European countries.
The real reason why both IMF and the British government announced
publicly to sell their gold obviously was that the officials would
just want to do what they could in order to stop the price of gold
from continuing to rise. They did not care about whether the announcement would negatively affect the selling price. They did not care about
how much less proceeds they would receive from the sale at all.

6)In
his complaint, Howe quoted a reliable report he received, this effort
was later described by Edward George, Governor of the Bank of England
and a director of the BIS, to Nicholas Morrell, Chief Executive of
Lonmin Plc :

“ We
looked into the abyss if the gold price rose further. A further
rise would have taken down one or several trading houses, which might
have taken down all the rest in their wake. Therefore at any
price, at any cost, the central banks had to quell the gold price,
manage it. It was very difficult to get the gold price under
control but we have now succeeded. The U.S. Fed was very active in
getting the gold price down so was the U.K. “
 

7)Now
we should realize that gold is a political metal and that the
“fixing“ of the gold price is beyond a lot of people's
imagination. As of today, the price of gold was traded at about
US$950 per ounce. Gold has been in a long-term bull market since
1999, rising year after year in terms of its dollar price, partly
because the central banks have less and less physical gold to dump in
the markets and partly because the strong investment demands have pushed the gold price higher.  In addition, the global productions are down year after year, reducing the supply steadily.