Precious Metals

Whether or not gold prices will continue their upward trajectory is the “million dollar question” being assessed by the investment community.

By Leia Toovey- Exclusive to Gold Investing News

Whether or not gold prices will continue their upward trajectory is the “million dollar question” being assessed by the investment community.  Since the metal’s price gains have accelerated, investors split into two separate camps: those who think the metal will see a correction and those who think that the metal’s rally is just getting underway.

As 2011 passed by, and gold continued to break through resistance and scale new highs, more analysts adopted the opinion that gold would continue its ascent. Analyst John Bridges summarized this point very succinctly when he said “Some people may argue that $1,600 an ounce is the top of the bubble,” in a report. Obviously, this report is now a few months old. $1,600 was one of those key psychological price points that spurred questions over a “gold bubble.”  However, just as soon as those concerns were raised gold prices shot up. This past Tuesday gold broke another key price record when it zoomed past the $1900.00 per ounce price point.

Gold has rallied with such impetus that as soon as a price projection is made, it is surpassed. That may be part of the reason why, at the beginning of the year, everyone wanted to make a prediction over gold’s potential price point in 2011. Now,  fewer analysts are willing to stick their neck out and forecast a gold price.

That being said, both JP Morgan (NYSE:JPM) and UBS (NYSE:UBS) recently released price projections for gold.  JPMorgan Chase raised its gold price expectation for the fourth quarter to $1,800 an ounce, citing seasonality, strong physical buying from India in the fall and rising debt levels as the major catalysts behind gold’s strength. UBS is also confident that gold’s rally is here to stay; the investment house boosted its 2012 gold-price forecast by 50 percent, citing “ongoing global macroeconomic disappointments. “The metal will average $2,075 an ounce next year, up from an earlier estimate of $1,380.  UBS has also boosted its long-term forecast.  A team of analysts led by Edel Tully expects prices will average $1,725 in 2013, compared with a previous forecast of $1,200.

It is not a far stretch to predict gold prices will continue to rally this year. Gold has been on a bull run for the past 10 years.  UBS’ reasons for expecting the rally to continue include: the maintenance of low interest rates in the US- which means gold does not have the competition of other assets that offer a yield, high debt burdens in both the United States and Europe, and the fact that global economic growth around the world is stalling. “The metal will be increasingly used as the line of defense against additional negative market outcomes,” added UBS. “Money will likely flow into the gold market over the months ahead and into 2012, and this should have significant price implications.”

With economic uncertainty as a key factor playing into gold’s continued rally- there is plenty of evidence suggesting gold’s strength will be maintained through the fourth quarter. The OECD has warned that the economic outlook in developed economies has become significantly worse; and predicts that growth in the fourth quarter will be 0.3 percent, extremely close to a recession-level growth rate.  In light of this meager forecast, the OECD has urged central banks to keep policy rates low and to stand ready for further easing.

In their Gold Demand Trends Report for the second quarter for 2011, the World Gold Council claimed that demand for gold is likely to remain strong in the second half of 2011, following high inflationary pressure and weak alternative investment sources like the equity markets and realty sector. “Going forward, we expect that the third quarter will see strong performance (by gold) leading to a good fourth quarter. This is mainly as I don’t see the equity market bouncing back, and realty sector struggling with high interest rates making loans costlier,” WGC Managing Director Ajay Mitra told reporters. Gold prices would be pushed higher amid nagging political and economic uncertainties, he added. Cui Jianguo, the vice president of the China Gold Association agrees with the WGC’s forecast. “Prices (for gold) in the second half will definitely rise because the factors behind the recent price increases have not changed; there is the European debt crisis, there is Libya and all kinds of economic uncertainties,”  added  Jianguo.


Securities Disclosure: I, Leia Toovey, hold no direct investment interest in any company mentioned in this article.


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