The Conversation (0)
If the “doom and gloom” predictions of the global economy’s future do come to fruition, many analysts predict the value of gold will continue on its long-term upward trend, topping $2000 US per ounce in the next couple of years.
“It is not unreasonable with all the issues – the sovereign debt, municipal debt, huge trade deficits, and the cost of carrying – that gold will hit $1600 an ounce this year and $2000 an ounce in the next one to three years,” said Wayne Atwell, Managing Director at Casimir Capital.
If the “doom and gloom” predictions of the global economy’s future do come to fruition, many analysts predict the value of gold will continue on its long-term upward trend, topping $2000 US per ounce in the next couple of years.
“It is not unreasonable with all the issues – the sovereign debt, municipal debt, huge trade deficits, and the cost of carrying – that gold will hit $1600 an ounce this year and $2000 an ounce in the next one to three years,” said Wayne Atwell, Managing Director at Casimir Capital.
As of midday on Tuesday, February 15, 2011, the price of gold was $1372 per ounce. The price of gold peaked on January 21, 1980 at $850 per ounce, which when adjusted for inflation would be about $2250 an ounce today. Investors at the time were prompted to buy heavily into the metal by high inflation in the United States caused by strong oil prices, Soviet intervention in Afghanistan as well as the impact of the Iranian revolution.
“I think that’s certainly a reasonable thought that gold could get back to its old inflation adjusted peak, so I think there are long-term reasons why you’d want to be there.” said Atwell.
The price of gold later plummeted and remaining steady in the $300-400 per ounce range in the following years, reaching an all-time low of $251.70 per ounce in August of 1999 on concerns about central banks reducing gold bullion reserves while mining companies were simultaneously selling gold in forward markets to protect against falling prices.
Now, the US could once again face threats of high inflation. Last year, the interest on the national debt came in at about $200 billion amid interest rates that were record-low and Atwell points to this growing expense as a cause for investors to take shelter in gold.
“We’re looking at a huge increase in just interest expense and the government budget office is predicting this. There are a lot of issues for one to be worried about so there are a lot of reasons to believe that gold is going to continue to go higher. Not right away, but by the end of the year and next year it will be meaningfully higher than right now,” said Atwell.
Then there are concerns about the financial situation in Europe, which drew many investors into gold throughout 2010. Eased concerns about the EU dept crisis have in part contributed to gold’s current lack of consistent upward movement, but according to Atwell, the sovereign debt issues are likely to return in the future.
“The EU has solved the liquidity issue for Ireland and Greece until 2013, but they haven’t solved the problem. Come 2013, these issues are going to be back in the forefront because they have not figured out how to put these countries back in balance,” said Atwell.
With all the different factors that are predicted to push gold up past its historical peak, situations could change, causing the metal not to perform as well as expected. This does not, however, change the fact that gold has been up for nearly 10 years in a row, which is not a claim that can be made for most investments. Gold’s track record lends credibility its value in tough economic times, which are certainly at the least a possibility for many parts of the world in the coming years.