There are a few points that we would like the reader to take away from this chapter. Firstly, gold is partly a commodity and partly a special kind of money. Gold is never really priced as a commodity, though, and the higher its price the more it is valued for its monetary functions. Secondly, gold's price is currency specific. Saying that the gold price in US dollars is too high is tantamount to saying that the price of the US dollar is too low. Thus, gold has many prices, and they can simultaneously move in opposite directions.

Finally, like the value of any other economic good, the value of gold changes according to changing perceptions and situations. Thus, the gold price expressed in any currency is subject to sizable swings. This must be emphasized because there are many goldphiles who wax eloquent about the eternal, immovable value of gold. However, over time gold preserves its purchasing power and it does function as a long-term store of wealth, especially during periods of economic crisis. With this very important insight we now turn to the physical market for gold, which will give us further insight for assessing the outlook for gold in subsequent chapters

David Fuller's view Those of us who follow the gold market closely are reasonably familiar with both its history and today's arguments for and against holding bullion in one form or another. Nevertheless this report from UBS adds to my perspective so I commend it to you.

My own view is that gold is currently undervalued against US dollars. Of course this is another way of saying that the US dollar is overvalued, as a haven and in terms of its supply. Interestingly, gold (weekly & daily) is testing lateral resistance near $1250 for a third time in the last six weeks and the small reaction lows have also been rising. Consequently, from a trading perspective I would give the upside the benefit of the doubt, at least until we see either a clear downward dynamic or the sequence of higher reaction lows is broken. From an investment perspective, a close under the May reaction low just above $1165 would be required to question uptrend consistency.