Expect new gold price highs in 2011

December 15, 2010 by · Leave a Comment
Filed under: Opinion 

This short article sums up the fear portion of the current gold trade.  What the article fails to address is the massive amount of global quantitative easing (money printing) going on right.   This is driving bond real interest rates to the floor.  People see this happening and are taking notice.   This is environment you want to preserve your purchasing power and not try and fight the central bank while they bail out their counter-parts (aka: commercial and investment banks).

We are going to see much higher gold prices and I am looking for $2200-2400 by the end of 2011.  With the amount of liquidity in the financial system, I think we will see a knee jerk reaction in asset prices and they will spike and we will see gold leading the way by the smart money.   2011 will be a year to learn much, many programs are going on and many theories are being put to the test, we will see if  “this time is different?”.

Investor Chronicle – Uncertainty abounds, with ongoing concerns over eurozone sovereign debt, nervousness in global financial markets, and the potential for increased concern over deflationary pressures. In the current economic and global-political environment, we see potential for gold to re-test all-time highs, above $1,424/oz (£903.32) and push to $1,500/oz in early 2011.

We expect contagion from the eurozone debt crisis and for Portuguese, Spanish and Italian debt to be restructured over the next three to six months. As long as this crisis remains unresolved, and the elevated levels of risk around North Korea and the Middle East remains, we believe the gold price should remain well supported.

Central banks are now net buyers of gold. The estimated 191 tons of gold that the IMF is expected to sell as part of the third European Central Bank Agreement should easily be absorbed by the market. To date, we estimate 125 tons have been sold with some 66 tons, about three months of sales, remaining.

In addition, seasonal demand trends created by year-end and Chinese New Year buying are expected to have a positive impact. The next likely signal for a pause in the current gold rally would be a hike in the Fed Funds rate, which we now assume to be likely to occur towards the end of 2011 or even into early 2012. We continue to believe the very accommodative fiscal and monetary policy will ultimately prove inflationary and positive for the gold price.

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