Gold Hits $3,500: Why This Could Be Just the Start

Gold prices have shot up past $3,500 per ounce and are now testing $3,600. Financial experts think this could be the beginning of an even bigger price increase.

Paul Wong, who analyses markets at Sprott Asset Management, says this happened because big investment funds started buying lots of gold while selling government bonds. This pushed gold out of a sideways trading pattern it had been stuck in for months. Wong thinks gold could reach $3,900 next.

But there's a bigger reason behind this rise: debt problems. The U.S. government and other major countries are spending way more money than they're taking in. This massive debt is making investors worried about government bonds, which are usually considered safe investments.

Here's what's happening: When governments borrow too much money, it creates several problems:

• Interest rates on government bonds start going up

• Inflation (rising prices) becomes a bigger threat

• Central banks (like the Federal Reserve) face a tough choice

  
  

The US Federal Reserve will likely cut interest rates this year, maybe by a significant amount, to help the struggling job market. But lowering rates usually makes inflation worse, creating a cycle where the government must keep spending to support the economy.

Wong calls this "fiscal dominance", basically meaning the US government's massive spending forces central banks to focus on keeping the economy growing instead of keeping money stable.

In this situation, the only solution is to make the dollar worth less over time. "When you have a hot economy with lots of debt and inflation, the dollar loses value," Wong explained.

When people lose trust in their government's money and bonds, they look for alternatives, and that's where gold comes in.

"Gold isn't just a backup plan anymore," Wong said. "It's the ultimate safe investment - people have trusted it for thousands of years, and no government or central bank controls it."

The bottom line: As government debt keeps growing and currencies become less reliable, more investors are turning to gold as their safety net.