Gold’s dream climb expected to plateau in 2012. While the president in his State of the Union Address Tuesday evening satisfied majority Americans’ thirst with hope, there was nothing there but empty phrases, hollow words that left a deep space for real ideas. And yet, he gave it so sincerely…you almost felt sorry for him. I listened as you did, and was disturbed how blatantly his speech tried to renew the market’s faith in paper currencies which reflected the reality, that President Obama believes that this crisis – like others that came before it – is best solved by still more government action.
In short, while President Obama employed the language of bi-partisanship, the picture he painted was that of Big Government digging in. Just like at the time of Sputnik. Soaring food prices have been, perhaps, the most pressing global issue of the past two years – yet the U.S. Federal Reserve has taken a “hear no evil, see no evil, speak no evil” approach to the global crisis. Instead, the Fed has dutifully maintained its focus on so called “core inflation” in the United States – even as Americans suffer the consequences of the “hidden inflation” the government refuses to account for. I was at a restaurant the other day and had asked a group of people next to my table if any one of them knew what the Federal Reserve was. Not a clue. One lady said, probably to protect our money. The Average American has no inkling what’s going on.
The Federal Reserve excludes food and fuel prices from its preferred gauge of inflation today because they are often influenced by erratic weather patterns and political turmoil. That at times has been the case over the past few years, but the euro zone’s ongoing sovereign-debt crisis remains a major threat to the global economy…and that affects us!
While his speech tells us “We Do Big Things” and gold is diving, as his speech renews the market’s faith in paper currencies, I wouldn’t expect a balanced budget for this year…or any year of this presidency. Instead, this administration will add 75% to the nation’s official national debt – three times more than all the presidents who came before Obama put together.
Yes, gold may have dipped. How deep will the dip? I don’t know. But I do know that people who try to time the gold market almost never do well. They get out avoiding the dips. Then, gold shoots up again. The speculators are out of luck. They can’t bring themselves to buy back in at a higher price. So they miss the explosive final stage of the bull market.
What to do about it? Don’t speculate. Buy gold as a way to save money. Then, think of it as you would a collectible…or an heirloom. Don’t worry about the price. Just hold on. By 2015, you’ll probably be able to use a few ounces to buy a new house.
But remember this: there will also be a time when it makes sense to sell gold. Right now, the Dow is a little under 12,000. And an ounce of gold is only $1,320. Our guess is that the Dow will collapse to under 5,000…while the price of gold soars to over 4,000. Get ready!
Gold in 2011
Gold should build on last year’s stellar gains in 2011 to hit record highs, boosted by low interest rates, dollar weakness and lingering worry over growth in major economies, a Reuters poll showed on Tuesday. But prices could plateau in 2012 as the global economy gathers momentum, quantitative easing measures that have flooded the markets with cheap money are reined in and interest rates turn higher, analysts say. So, stay wise and stop to think. The real deal with the economy is veiled by speeches, but the fact is, its the calm before the storm…
A poll of 65 analysts conducted by Reuters in early January found a median 2011 gold price forecast of $1,450 an ounce, 18 percent higher than 2010’s average London Bullion Market Association (LBMA) gold fix of $1,225.60 an ounce.
The forecast is also just above last year’s record high of $1,430.95 , and clearly outstrips an average forecast of $1,228 an ounce returned by a similar poll conducted last July. “The same reasons that were behind gold investment in 2010 will also drive prices in 2011,” said Bayram Dincer, an analyst at LGT Capital Management in Switzerland.
“You may have some dollar devaluation, and also an expectation that the Federal Reserve won’t raise interest rates,” he said. “The fact that people will continue to hold gold and further increase investment in gold makes us very bullish for the precious metal.”
Historically low interest rates in much of the world have been a major support to gold prices in recent years. Low rates cut the opportunity cost of holding non-interest-bearing gold.
While fiscal deficits and sovereign debt are likely to dog Europe and the United States, rising inflation in fast-growing economies like China, India and Brazil are also likely to lift the metal’s allure as hedge against rising prices in those areas, analysts say.
The poll showed analysts expect gold prices to rise throughout the year, from $1,400 an ounce in the first quarter to $1,432 in the second, $1,477 in the third and $1,520 in the final three months of the year.
SILVER LINING
Silver touched a near 31-year high at $31.22 an ounce earlier in January.
The grey metal, which unlike gold has a large industrial component to its demand base, is also expected to peak in the fourth quarter at $31 an ounce.
A recovery in industrial production is expected to benefit silver, which is widely used in electronics manufacturing.
“China and developed countries (are the main regions driving demand), as silver is used in solar power panels, plasma display panels and information technology,” noted Koichi Iwanaga, general manager of commodities at Japan’s Sumitomo Corp.
Expectations for gold’s performance have risen sharply, with the survey of 65 leading analysts, traders and fund managers predicting gold will average $1,450 an ounce this year, well above its record high of $1,430.95 an ounce.
“We believe that gold will continue to attract safe-haven buying from risk-averse investors this year, as European Union sovereign debt concerns persist.” Says JAMES STEEL, ANALYST, HSBC. “The Federal Reserve is likely to continue with its programme of quantitative easing (QE) in 2011 to prevent deflation from taking root, while the pace of economic activity in the emerging world will likely remain strong, igniting inflation fears…The combination of continued QE in the U.S. and rising inflation pressures in the emerging world is a particularly bullish cocktail for gold.”
HOU XINQIANG, ANALYST, JINRUI FUTURES tells us, that “Changes in the geopolitical situation will trigger changes in foreign policies and relations between major countries, which will influence gold prices. The economic recovery in the U.S. and the euro zone is another key issue which will drive gold prices north.
In addition, market liquidity, which is mainly determined by the shifts and timing of shifts in monetary policies in the euro zone and the U.S., will amplify moves in gold prices. Speculative buying has been a key player in gold’s rally in the past two years and will continue to push prices in the future. On the demand side, emerging markets, such as India and China, should be closely watched.”
The World Gold Council released its global gold investment: Saudi Arabia: 126% increase to 323 tons of gold reserves. China: 76% increase to 1054 tons of gold reserves.
Russia: 72% increase to 664 tons of gold reserves, and to replenish its reserves, Russia is planning to buy 100 tons of gold a year. The 5 foot, 8 inch cube would be valued at $4.3 billion. Incredible! By the way, Russia’s Highland Gold Mining sees output rising to 210,000-220,000 ounces of gold this year from 200,028 ounces in 2010 as it ramps up production, a gain of up to 10 percent and India: 56% increase to 558 tons of gold reserves.
Source: http://goldcoinblogger.com/hold-tight-to-gold-it-is-the-calm-before-the-storm/#more-2693
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