Saturday 15 October 2011
Will Gold Hit $2000 by 2012?
Many a wide-eyed gold bug caught a glimpse of their favorite metal jumping over the psychologically (and technically) important $1,200 an ounce level Wednesday morning. I say a “glimpse” because those who blinked may have missed it.
But the blip still managed to register on the radar screen long enough to get every gold enthusiast hot and bothered about a possible return to the highs enjoyed earlier in the year, if not a jump into the stratosphere.
After a nearly 5 percent price loss last month, the gold market was understandably hungry for some good news. And this week offered plenty of nibbles large enough to feed double digit gains, with gold rising 2.2 percent in the five prior sessions. Wednesday’s gains put the yellow metal on track for its longest advance in nearly nine months.
Two of the most bullish factors at play in the gold market are the expectation the US Fed Reserve may lean on more inflation-stoking quantitative easing measures, and news that China is seeking to expand its gold market.
Earlier in the week, the Wall Street Journal, without naming sources, suggested the Fed was set to use the cash it will receive from its matured mortgage-bond holdings to purchase new mortgage or Treasury bonds. The report sparked fresh inflation fears, and sent the dollar down, which served gold prices well.
“The more debt the Fed buys, the lower interest rates will be and the more money there will be in circulation,” noted The Street’s Alix Steel. “Already the yield on the 10-year Treasury note, a benchmark, is less than 2.91%. One fear is that this move will lead to a devalued dollar, which hit an eight-month low against the yen on Tuesday, and a lack of confidence in the U.S. economy.”
The concern is the Fed will resort to such measures in the face of sure signs economic recovery has stalled. Many are holding their breath awaiting Friday’s unemployment numbers, which are expected to be rather weak.
The Peoples Bank of China announced this week it will allow more commercial banks to import and export gold as well as to participate in trading at the Shanghai Gold Exchange, which the market viewed as an indicator of rising Chinese demand.
“Suggestions from the PBOC that they would develop a gold loan market and indications that they have also decided to expand their physical gold market seems to give gold fresh credence as a financial instrument inside China,” said Jaime Greenough, futures representative at Global Securities, in a note.
“Behind India, China is the second-largest physical consumer, therefore any step to integrate, liberalize, and expand this market should, in time, foster a rising appetite for gold,” UBS analyst Edel Tully commented.
Price Forecasts
It’s safe to say that in no other market do the Bears and the Bulls butt heads as often as in the gold market, where interpretations of the events shaping prices vary widely from bare bones and boring technical analysis to the stuff of international spy novels dripping with dark cabals and wild conspiracy theories. So, it should be of no surprise that price forecasts from the market’s analysts can vary in ranges wider than the Grand Canyon.
London-based commodity brokerage firm Natixis believes gold’s supply/demand fundamentals are too poor to justify current price levels let alone much higher advances. In fact, it sees price levels dropping to around $1,050 an ounce in the fourth quarter with further drops to as low as $950 an ounce into 2011 with highs of $1,150 an ounce next year. Those with a more bearish take view fears over a world-wide financial armageddon abating as euro zone debt issues cool, taking away much of the impetus for the precious metal’s gains over the past year and to record highs in June.
From a long-term perspective, gold prices near $1,500, should we ever return to that level, $1,600, or even $1,700 an ounce will prove to be bargains"
My forecast, published here on NicholsOnGold and in other speeches and reports, of $1,700 gold by year-end 2011, now seems within easy reach.
And this is just the beginning of gold's next great leap upward, a leap that will carry the metal to $2,000 an ounce in 2012 - with prices heading still-higher, quite possibly to $3,000, $4,000 and maybe even $5,000 an ounce by the mid-to-late years of the decade.
From a long-term perspective, gold prices near $1,500, should we ever return to that level, $1,600, or even $1,700 an ounce will prove to be bargains.
As I have cautioned in the past, expect high two-way price volatility and periodic sharp corrections, corrections that some will mistake as the end of the bull market - but consider these opportunities for "scale-down" buying, opportunities to acquire additional metal at bargain-basement prices.
Rising some $300 an ounce from its January 2011 low point and more than $120 in just the past few weeks, gold has scored a series of successive all-time highs. Now, however, there is certainly some risk of a sharp short-term correction, particularly if the political-economic news on either side of the Atlantic looks less threatening to financial market stability.
A political compromise to raise the U.S. Treasury debt ceiling and agreement to narrow the Federal deficit in future years that avoids any downgrading of Treasury debt by the rating agencies would remove or reduce an important source of anxiety that has contributed to gold's recent strength. News of positive movement toward or actual completion of an agreement could trigger a swift - but temporary - gold-price retreat.
But the blip still managed to register on the radar screen long enough to get every gold enthusiast hot and bothered about a possible return to the highs enjoyed earlier in the year, if not a jump into the stratosphere.
After a nearly 5 percent price loss last month, the gold market was understandably hungry for some good news. And this week offered plenty of nibbles large enough to feed double digit gains, with gold rising 2.2 percent in the five prior sessions. Wednesday’s gains put the yellow metal on track for its longest advance in nearly nine months.
Two of the most bullish factors at play in the gold market are the expectation the US Fed Reserve may lean on more inflation-stoking quantitative easing measures, and news that China is seeking to expand its gold market.
Earlier in the week, the Wall Street Journal, without naming sources, suggested the Fed was set to use the cash it will receive from its matured mortgage-bond holdings to purchase new mortgage or Treasury bonds. The report sparked fresh inflation fears, and sent the dollar down, which served gold prices well.
“The more debt the Fed buys, the lower interest rates will be and the more money there will be in circulation,” noted The Street’s Alix Steel. “Already the yield on the 10-year Treasury note, a benchmark, is less than 2.91%. One fear is that this move will lead to a devalued dollar, which hit an eight-month low against the yen on Tuesday, and a lack of confidence in the U.S. economy.”
The concern is the Fed will resort to such measures in the face of sure signs economic recovery has stalled. Many are holding their breath awaiting Friday’s unemployment numbers, which are expected to be rather weak.
The Peoples Bank of China announced this week it will allow more commercial banks to import and export gold as well as to participate in trading at the Shanghai Gold Exchange, which the market viewed as an indicator of rising Chinese demand.
“Suggestions from the PBOC that they would develop a gold loan market and indications that they have also decided to expand their physical gold market seems to give gold fresh credence as a financial instrument inside China,” said Jaime Greenough, futures representative at Global Securities, in a note.
“Behind India, China is the second-largest physical consumer, therefore any step to integrate, liberalize, and expand this market should, in time, foster a rising appetite for gold,” UBS analyst Edel Tully commented.
Price Forecasts
It’s safe to say that in no other market do the Bears and the Bulls butt heads as often as in the gold market, where interpretations of the events shaping prices vary widely from bare bones and boring technical analysis to the stuff of international spy novels dripping with dark cabals and wild conspiracy theories. So, it should be of no surprise that price forecasts from the market’s analysts can vary in ranges wider than the Grand Canyon.
London-based commodity brokerage firm Natixis believes gold’s supply/demand fundamentals are too poor to justify current price levels let alone much higher advances. In fact, it sees price levels dropping to around $1,050 an ounce in the fourth quarter with further drops to as low as $950 an ounce into 2011 with highs of $1,150 an ounce next year. Those with a more bearish take view fears over a world-wide financial armageddon abating as euro zone debt issues cool, taking away much of the impetus for the precious metal’s gains over the past year and to record highs in June.
From a long-term perspective, gold prices near $1,500, should we ever return to that level, $1,600, or even $1,700 an ounce will prove to be bargains"My forecast, published here on NicholsOnGold and in other speeches and reports, of $1,700 gold by year-end 2011, now seems within easy reach.
And this is just the beginning of gold's next great leap upward, a leap that will carry the metal to $2,000 an ounce in 2012 - with prices heading still-higher, quite possibly to $3,000, $4,000 and maybe even $5,000 an ounce by the mid-to-late years of the decade.
From a long-term perspective, gold prices near $1,500, should we ever return to that level, $1,600, or even $1,700 an ounce will prove to be bargains.
As I have cautioned in the past, expect high two-way price volatility and periodic sharp corrections, corrections that some will mistake as the end of the bull market - but consider these opportunities for "scale-down" buying, opportunities to acquire additional metal at bargain-basement prices.
Rising some $300 an ounce from its January 2011 low point and more than $120 in just the past few weeks, gold has scored a series of successive all-time highs. Now, however, there is certainly some risk of a sharp short-term correction, particularly if the political-economic news on either side of the Atlantic looks less threatening to financial market stability.
A political compromise to raise the U.S. Treasury debt ceiling and agreement to narrow the Federal deficit in future years that avoids any downgrading of Treasury debt by the rating agencies would remove or reduce an important source of anxiety that has contributed to gold's recent strength. News of positive movement toward or actual completion of an agreement could trigger a swift - but temporary - gold-price retreat.
