Commodity Blog

Commodity news, technical and fundamental analysis, market data on precious metals, energies, industrial metals, and soft commodities


Forecast: Gold in 2012

January 15, 2012 at 10:33 by Vladimir Vyun

Gold in 2012Gold was a stellar performer in 2010 and traders entered 2011 extremely bullish on gold. Some experts were talking about $3,000 and even $5,000 per troy ounce. Indeed, the metal reached a new record high last year, even though it wasn’t gaining as fast as most optimistic forecasters predicted. Yet the end of 2011 left market participants disappointed as gold dropped sharply and had hard time recovering from the loss. Many traders wonder: is there any reason to remain bullish on the precious metal?

The short answer is “yes”. The long answer: most market analysts name a several reasons to be optimistic about gold, but they remain more cautious than at the beginning of the last year. They name several reasons to be bullish on gold: attempts of developed nations to devaluate their currencies and physical demand from Asia. The United States is perhaps the major contributor to optimism for the precious metal as its low interest rates and a possible next round of quantitative easing add to inflationary pressure to the upside for gold. Central banks across the world also stepped in, boosting their gold reserves to diversify from the US currency.

What about downside factors for gold? There is one most important threat for the commodity: Europe. It may look strange at first as the European debt crisis should add to safe-haven attractiveness of gold, but one needs just to recall 2008, when all commodities were tumbling, even precious metals. A serious crisis can be negative for gold and the problems of Europe look serious enough.

Mark Leibovit, editor of the VRTrader newsletter, said in December:

We might hit bottom in a month or so. How far it might go depends on how the technicals unfold. Short-term it’s held the September lows of $1,531. But we have to see it perform in both time and price to confirm it. What might it take do so? We’d need to see the equity market improve, Europe improve, and maybe a QE3.

That outlines the major factors for gold. In case the Federal Reserve would embark on a new round of easing and Europe would emerge from its crisis relatively unscathed, the precious metal will jump to new records. Consequently, gold is in danger in scenario where the USA would recover without additional stimulus, while the eurozone woes would strengthen. If anything, such scenario would boost the dollar, hitting prices for all commodities, gold included. Unfortunately for gold bulls, such scenario is quite possible as America shows signs of recovery, reducing need for stimulus, while European politicians lack courage to make bold moves for saving the European Union from its credit crunch.

Most analysts remain optimistic for gold, though less bold in promising new records. They believe that the metal will reach $2,000 per ounce in 2012, but it won’t move in a straight line and strong corrections can be expected. The worst case scenario may push gold to $1,270, but it’s not likely to go lower, at least not in 2012. In fact, forecasters thought that gold would be weak at the beginning of this year, but for now the precious metal proves to be more resilient than it was given credit for.

If you have any questions and comments on Gold today, use the form below to reply.

Leave a Reply