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Gold Ready for a Jump to New Recrods in 2011

December 28, 2010 at 19:17 by Vladimir Vyun

Gold showed an impressive rally in 2010, but by the end of the year the precious metal experienced several drops, causing concerns that the rally is faltering. Is this just a temporary breather before another jump to records or gold started a way down?

The fundamentals as well as the sentiment look favorable for the metal. The experts from the International Business Times and the Mineweb name such favorable factors for gold: the quantitative easing of the Federal Reserve, the debt crisis in Europe, which forces the European Central Bank stimulate the economy of the European Union, general debasing of currencies by governments of different countries and worldwide uncertainty about global recovery – all this makes gold a very attractive asset to hold as a safe haven. As more and more investors flock to gold new problem arises: the lack of supplies. The old mines are drying out and the new ones aren’t going to be opened in sufficient quantities as there are no resources and technologies to quickly find the new gold deposits. And a growing demand from Asian countries, primarily from India and China, puts additional strain of dwindling supplies.

Despite all the favorable factors gold’s rally stalled recently. One of the reasons for weaker performance of the precious metal was a stronger dollar. The fact that gold is priced in dollars on markets and the recent rally of the greenback held gold prices from going much higher. Another reason for gold possibly being weaker is its current high price, which may drive investors away. Bears, as said on the Economist, also point out that the economic situation in the world should stabilize and the gold bubble will burst as the demand for the metal is mainly speculative and there isn’t nearly enough physical demand to justify such “outrageous” prices. Besides, there’s just no profit in keeping the metal as it’s not bringing interest, dividend, rent or some other form of income by itself like some other assets. On the contrary, safekeeping of gold incurs additional costs.

So, if you’re expecting improvement of the global economy you can start selling gold. But most economists wouldn’t approve such course of action. While such forecast as gold climbing to $5,000 aren’t widespread nowadays, more moderate forecasts, as outlined on the Morgan Gold, still promise gold to advance to $1,500 in the first half of the next year and rise to $2,000 by the end of 2011. Of course, corrections may be expected, especially if the interest rates would start rising, making other types of assets more attractive. Gold prices through the year may decline to $1,315 or even as low as $1,265.

If you have any questions or comments about the future trading for the Gold, use the form below to reply.

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