International Business Times
A search on Google for "gold price predictions" will turn up a wide range of answers for the direction of yellow metal in the years ahead. They range from gold falling from its current price of $1700 per ounce to predictions of $6000 in the coming years. And if you delve into the search far enough, you will find five-digit gold predictions.
In December, Citigroup called for gold to hit the $2300 to $2400 range during the second half of 2012. The research firm went on to say it was possible to see gold move toward $3400 in the next two years. If Citi is correct, in two years the price of gold will double yet again.
Why I Am Bullish On Gold
In my opinion, there are three scenarios that could occur in the coming years when analyzing the global economy. All three have the potential to offer bullish environments for the price of gold.
The first and most likely scenario involves modest growth for the global economy. The developed countries such as the United States and Western Europe will grow by approximately 2.5 percent with the emerging markets slightly higher. This scenario assumes the worst is behind us in Europe and that no "black swan" events will occur in the coming years.
If this is the case, it will prevent the Euro from a further decline against the U.S. dollar. Therefore, the recent move higher in the greenback will be short lived. The long-term chart of the U.S. Dollar Index shows the index has been in a downtrend for a decade. This has occurred as the government continues to pound the table on their "strong dollar policy."
Another factor that will hold down the value of the greenback will be the government's strategy to increase exports substantially. The only way to achieve their lofty goals would be to keep the value of the U.S. dollar down.
So why is the value of the U.S. dollar so important? Because historically the price of gold and the greenback have an inverse relationship. As the U.S. dollar falls, it benefits commodities that are priced in the currency. In particular, the price of gold will move in the opposite direction of the U.S. dollar.
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Gold is poised for a 21 percent gain in 2012, extending its bull market to 12 consecutive years, as investors hoard record amounts and central banks expand reserves for the first time in a generation.
Bullion may rise to $1,897 an ounce in New York by Dec. 31 from $1,566.80 at the end of 2011, based on the average of 14 respondents in a survey at the Bloomberg Link Precious Metals Conference yesterday in New York. The rally that began in 2001 is the longest since at least 1920 in London, including a 10 percent gain last year.
Demand has strengthened as Europe seeks to contain its debt crisis, China’s economic expansion slows, and governments from the U.S. to the U.K. keep interest rates at all-time lows to shore up growth. Central banks have been net buyers for three straight years, the longest stretch since 1973, World Gold Council data show. Holdings (.GLDTONS) in exchange-traded funds backed by the metal reached a record 2,410.2 metric tons yesterday, data compiled by Bloomberg show.
“There are significant shifts going on in the world,” said Martin Murenbeeld, the 67-year-old chief economist at Toronto-based DundeeWealth Inc., which manages about $100 billion in the Dynamic Mutual Funds. “Gold has become an investment, an asset class, and over time, we are only going to be building it up. The central banks are holding gold because they are not sure if the euro will remain five years later.”
Gold futures have rallied 4.9 percent this year to $1,642.90 on the Comex in New York. That compares with a 9.1 percent jump in the Standard & Poor’s GSCI Spot Index of 24 commodities, and a 11 percent appreciation in the MSCI All- Country World Index of equities. Treasuries lost 0.9 percent, a Bank of America Corp. index shows.
The Federal Reserve has kept U.S. borrowing costs at a record low near zero percent and conducted two rounds of asset purchases, or so-called quantitative easing, in a bid to boost growth, fueling demand for gold as a hedge against inflation and a drop in the value of the dollar. Yesterday, the Fed said in a statement that the labor market was improving.
Portugal is raising taxes and cutting spending to meet the terms of its 78 billion-euro ($102 billion) aid plan from the European Union and the International Monetary Fund after it followed Ireland and Greece in seeking a bailout last year. Last week, Greece pushed through the biggest sovereign restructuring in history.
“Gold is the ultimate downside protection,” Rachel Benepe, who helps manage $3.5 billion, including 17 percent in gold bullion, at the First Eagle Gold Fund in New York, said at the conference. “The future is uncertain, and we have no idea how we’re going to get through with this situation. That’s why we own gold.”
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