5 reasons gold is headed for $3,000 (MSN Money)

Recent dips are giving us another chance to get in on the great gold rush. The factors driving the metal higher -- broken governments and fragile economies -- aren't going away.

Is the next stop for gold $3,000 -- or $1,000?

With the precious metal seeing some weakness since posting an all-time high of more than $1,900 an ounce -- though it rebounded Tuesday to about $1,800 -- that's the critical question for anyone who caught gold's big run or who is wondering if it's too late to get in.

Few investments bring out more passion than gold does. The folks known as gold bugs never seem to think the price is high enough, while their critics have been waiting since $1,000 for the bugs to get their comeuppance.

But for the rest of us, the challenge is figuring out whether gold's move can go on. Analyzing that involves looking at the reasons gold has been on a tear, and whether they'll continue to be in play.

A careful look tells me $3,000 could indeed be in gold's future, making upcoming dips buying opportunities. Here's why I think gold is headed higher after a correction that could send gold down to $1,600 or lower -- and the best ways to buy in if you agree.

Why gold is heading on up

A $3,000 price tag would have seemed farfetched a decade ago, when the price was around $300, or even when gold first crossed $1,000 an ounce in 2009. But the political and economic uncertainty pushing gold higher isn't over, because debt and spending problems around the developed world look so entrenched.

JPMorgan Chase analyst Colin Fenton just predicted gold could spike to $2,500 an ounce over the next four months. And Tom Winmill, who manages the Midas Fund (MIDSX 0.00%), thinks gold could trade as high as $2,200 next year, largely due to national budget issues and economic uncertainty. Then in early 2013 after the U.S. presidential elections, an ongoing inability to deal with national spending and debt issues may push it even higher, he believes.

Winmilll won't put a number on how high a budget crisis at that point would drive gold. But think of it this way: To get to $3,000, it takes a spike of less than 30% from his projected 2012 high of $2,200. And as we've seen this year, a 30% spike in gold is not unusual when uncertainty drives investors to the perceived "safe haven" of gold. This year, gold rose from less than $1,400 an ounce to more than $1,900 an ounce, a move of greater than 30%.

Michael Brush

That makes $3,000 not just possible, but in reach.

Why I'm a believer

This isn't the first time I've made a prediction that befuddled the gold bears.

I've twice before published bullish outlooks for gold -- in a November 2007 column, "Why gold is going straight to $1,000," and in an April 2008 piece, "5 reasons gold is headed to $1,500." (Editor's note: Those columns are no longer available.)

Both times those targets felt distant, and both times I heard from the doubters -- mainly because in both cases gold had already seen a big run-up, and they thought it was already overpriced.

By now, those targets have been topped by wide margins. That doesn't mean I'll be right a third time. But there are still compelling reasons to think gold could go much higher.

"The long-term drivers for gold are still intact," says Brian Hicks, co-manager of U.S. Global Investors Global Resources Fund (PSPFX 0.00%, news), the top-performing Lipper global natural resources fund in 2010. "I don't believe it is in a bubble."

Here's a look at what will drive gold prices higher:

Driver No. 1: Fears of out-of-control governments

You know the litany by now. In the U.S. and Europe, excessive government promises and debt are creating a financial storm. There are no easy solutions. "I am not sure there is the political will to really address the problems," says Hicks. At some point, though, a more serious crisis will hit "and that is when you are going to see gold take off," he says.

And one of the solutions tried so far -- increasing the money supply to spur growth and tax revenue -- may well create lot of inflation, which is bullish for gold. "All of these factors create great conditions for gold, which people rightly or wrongly perceive to be a safe haven in uncertain times," says John Hathaway, the manager of the Tocqueville Gold (TGLDX 0.00%).

Driver No. 2: Negative interest rates

When the best you can do with your cash is pay someone to hold it -- as opposed to earning interest -- owning gold looks a lot more attractive. And with inflation at 2% or so, and U.S. Treasurys earning around that amount and money market funds earning far less, that's what we have right now. "Negative real interest rates (after inflation) are a big inducement for investors to look some other place to protect value. Gold is going to be one those places," says Hathaway.

Driver No. 3: Central bankers are buying again

Central banks, especially in South Korea, Thailand, Russia and Mexico, are buying gold again, adding to demand. By the middle of July, central banks had bought more gold this year than in all of last year, according to the World Gold Council. For the first time since the 1980s, central banks have been net buyers of gold for three years in a row, points out Deutsche Bank analyst Michael Lewis. And it's not over. "Central banks are likely to remain net purchasers of gold," says the council. Central bank demand could grow even more if China decides to replace dollar-denominated debt with gold as a hedge against a dollar that gets torpedoed by U.S. debt and economic problems. This is likely.

Driver No. 4: Gold supplies are limited

Mining adds only a small percentage to overall gold supplies above ground each year, so the supply is limited. Over the nine years through the end of last year, gold above ground grew at an annual rate of just 1.7% to an estimated 166.6 tons, according to my calculations using numbers from the World Gold Council. "There's so little physical gold, it just takes a small increase in demand to have a big impact on prices," says Hathaway.

Driver No. 5: Gold still looks cheap, by some measures

Unlike a stock, gold has no earnings or cash flow. So how do you decide if it's overvalued? By comparing its value to common benchmarks. And by several comparisons, gold still looks cheap.

Gold would have to hit $6,400 an ounce for it to match its value relative to the Standard & Poor's 500 Index ($INX +0.23%) when it was at highs in 1980, points out Lewis. And at current prices, gold's value relative to oil and copper is at around the historical average, says Lewis.

So, is this a buying opportunity?

Make no mistake, Hicks and other analysts think gold looks toppy, with the recent bouts of weakness indicating the start of a price correction that's not over.

Using technical signals like relative strength, a measure of how far an asset has moved in price compared to recent history, Michael Painchaud, of Market Profile Theorems, believes gold could correct -- fall in price -- for several months, taking the metal down to around $1,630 an ounce. That's its 50-day moving average, a common support level in corrections. A worst-case scenario would send gold down to its 200-day moving average, or just below $1,500 an ounce.

"Our technical indicators still show gold as being extremely overbought, or trading somewhere between the stratosphere and the ionosphere," agrees Fred Dickson, the chief investment strategist at Davidson Companies.

But if the gold bugs are right about the potential for a medium-term move up to the low $2,000 range and on toward $3,000, you should be buying on the correction. At the very least, given all the uncertainty, it pays to have around 10% of your overall portfolio in gold as a hedge, says Rachel Benepe, co-manager of the First Eagle Gold (SGGDX 0.00%). Any upcoming move down might be a good time to get it, if you don't have it already.

http://money.msn.com/exchange-traded-fund/5-reasons-gold-is-headed-for-3000-dollars-brush.aspx?page=0

22 AUG, 2011, 02.44PM IST, REUTERS 

Gold prices to repeat 1980 climb: Wang Tao, market analyst (Economic Times)

SINGAPORE: The current bull run in spot gold prices could mirror the climb to dizzying heights seen in 1980, market analyst Wang Tao said, adding that bullion prices were increasingly becoming emotion driven. 

In 1980, gold climbed to $835, completing a bull cycle that started at $34.95 in 1970, Wang said. 

That cycle was corrective, made of three small waves labeled as "a-b-c", and the wave "c" traveled 4.618 times the length of the wave "a". 

"That ratio may repeat under the present scenario, indicating gold could hit about $4,000 over the next few years," Wang said. 

But he cautioned that it was too aggressive to target $4,000 right now, saying he would rather target $2,345 by the end of this year, which is the 261.8 percent Fibonacci projection level of the current wave "C", based on his wave count and a Fibonacci projection analysis. 

The wave "C" is composed of five small waves, with the current rally labeled as a wave "V", the final stage of a five-wave cycle, Wang said. 

The final stage is often the fiercest rally in a commodities market, as seen in the sharp rise over the past several weeks, he said. 

While several political and financial uncertainties -- such as high inflation and oil price, Richard Nixon's action to detach the US dollar from gold and Soviet intervention in Afghanistan -- led to the rally in gold to $835 in 1980, there are even more reasons for a surge in rices now, Wang said. 

"Today's situation could be worse, as risk aversion has taken tight hold of people's psychology." 

The G-7 and US government are seen running out of resources to rescue the economy, which has been hit hard by the bankruptcies following the 2008 subprime debt, persistent worries that the sovereign debt crisis in euro zone peripheral countries may spread to bigger regional economies, high inflation in emerging markets and soaring commodities prices. 

Central banks from South Korea, Mexico and Russia to Thailand have been adding gold to their reserves in a sign of waning faith in the West's benchmark bonds and currencies like the dollar and the euro. 

Spot gold prices could rise further towards the 1980's inflation-adjusted record price of just below $2,500, Wang said. 

(Wang Tao is a Reuters market analyst for commodities and energy technicals. The views expressed are his own. 

No information in this analysis should be considered as being business, financial or legal advice. Each reader should consult his or her own professional or other advisers for business, financial or legal advice regarding the products mentioned in the analyses.)


http://economictimes.indiatimes.com/markets/commodities/gold-prices-to-repeat-1980-climb-wang-tao-market-analyst/articleshow/9694796.cms

Gold to Exceed $2,000/Ounce Next Year - Barclays Capital

Bears to Remain in Hibernation

August 16, 2011 10:58 AM EDT

The price of gold will top $2,000 per ounce next year as worries about massive national debts intensify, central bank buying of the yellow metal grows and broad investment demand accelerates, all in an environment of declining supply, Barclays Capital said Tuesday in a report.

"The gold market has undergone a number of fundamental changes that have supported successive highs over the past few years, rather than crashing back down as in 1980," the investment bank said, referring to the year that gold set an inflation-adjusted high. "We believe three key pillars are set to strengthen and drive prices further into uncharted territory, breaching the $2,000 per ounce milestone."

"First, a structural shift in macroeconomic insecurity on the back of the heightening of sovereign debt risks and credit downgrades," Barclays said. "Second, the sharp acceleration of broad investment demand after a mostly absent (first half of 2011). And, third, central bank buying has returned and from new corners in sizeable tranches, a trend that is set to continue"

Concerns about the the debts of the U.S., Spain, Italy and France plus the expectation that the U.S. dollar will continue to weaken all increase pessimism and drive flight-to-safety investing.

Increased central bank buying of bullion has "reignited gold's relevance as a monetary asset." Barclays identified Russia,China, Mexico, South Korea,Thailand and Tanzania as nation's that are buying or considering buying large amounts of bullion.

Barclays also said it expects the overall global supply of gold to tighten this year, further supporting the price.

So well grounded is the current rally in gold prices that it will overcome profit-taking by investors, increased margin requirements as regulators try to suppress gold price increases and seasonally soft physical demand, though such factors could periodically "temper" the rally, Barclays said.

The only things that could change gold's upward trajectory would be rising real interest rates, controlled inflation and a stable macroenvironment, the investment bank said.

Follow us on LinkedIn  LinkedIn

http://www.ibtimes.com/articles/198619/20110816/gold-price.htm

Return to the Gold Standard? (CNBC)

Published: Monday, 15 Aug 2011 | 7:20 AM ET


By: Shai Ahmed
Associate Editor, CNBC.com

With gold surpassing record highs in recent sessions, some experts argue governments could re-introduce a return to the gold standard where countries would peg their currencies to the value of gold at a certain level.

Tom Grill | Iconica | Getty Images

"I think we will easily break $2000 per ounce within a year. The way to think of the gold price is to think of it as a currency against which other currencies depreciate," Irakli Menabde, M2 precious Metals told CNBC Monday.

Although the future of gold as a safe haven remains secure at least in the short term, the ability for it to retain record highs consistently rests on a number of wider macro-economic factors as well as being more attractive than other currencies and bonds.

"The questions are whether there will be a third round of quantitative easing and whether central banks will continue to print money to bail out other insolvent banks, therefore gold has a bright future," he said.

"When we look at currencies, the Swiss franc has the safe haven status because of its past links with gold. It's assumed safe haven status because it was one of the last currencies to get off the gold standard.

"The money that has been going into the Swiss franc and coming out of it now will likely find its place in the gold market," he added.

Menabde said despite the rapid rise of gold in recent weeks – it hit $1813.79 last Thursday -value remains in the commodity which has yet to see its peak.

"Gold has had a rapid appreciation to $1800 (per ounce) so you would expect to see some pullback. If you want to participate you should buy gold shares, that's where the better opportunities are. We've had one bailout and gold rallied, we had another and gold rallied and we have not yet resolved the fiscal problems that are plaguing Europe and the United States. It's the bailing out that rallies the gold price," he said.

He dismissed critics who argue that although there is room left for further rises these are likely to come back down as the rally ends.

"If governments take the right steps and end the bailout mania that is plaguing currency markets than gold relative to other currencies will correct.

Unfortunately the governments are way over in debt  and there appears to be no appetite for austerity and prudent monetary and fiscal policies. I see only more bailouts and irresponsibility," he added.

Other analysts argue that with deep structural issues affecting the developed world economies a rebalancing of economies with the very definition of safe-havens being renegotiated leaving gold in a prime position.

"Gold's greatest strength is that it has no default process, no liability. When I hear the word bubble around gold I would argue that it is as undervalued as it was in 2001 and what we are experiencing here is just a re-rating of gold....The problem is we have run out of capital and the system is bankrupt, we are at a monetary juncture.

We are likely to see very high inflation  rates in the future and perversely gold could go even higher if we go into a default situation," Ben Davies, CEO at Hinde Capital told CNBC Monday.

© 2011 CNBC.com

http://www.cnbc.com/id/44142678

Gold Continues to March Toward $4,000 (The Market Oracle)

Aug 05, 2011 - 12:03 PM

By Barry Elias

$1,700.

The above represents the price of gold per ounce that was nearly reached Thursday (high of $1,683).

During the past month, gold has risen 10 percent to $1,650.

My Moneynews blog, dated January 7, 2011, and referenced below, provided an analysis in support of gold reaching $4,000 per ounce in the coming decade

Following the publication of my article, John Paulson, founder of John Paulson & Company, suggested the same. You may recall, during the 2008 financial crisis, Mr. Paulson earned over $3 billion, individually, by shorting subprime mortgage-backed securities (anticipating a decline in these asset prices).

Since my article was published, gold increased 20 percent over 7 months from $1,370 to $1,650.

As I anticipated, the equity market has declined. In just 4 days, it dropped 800 points, or 7 percent.

This, despite the so called “big deal” regarding the U.S. debt limit.

Ironically, the negotiations between the president and Congress have further destabilized the U.S. economy as global leaders perceive weakness in our ability to service the voluminous debt load.

European economic growth is expected to decline as inflation edges upward. Even Germany expects lower GDP (gross domestic product) growth.

Debt deleveraging is of paramount concern. The result will be a decrease in aggregate demand for financial assets and debt. Attracting capital will require higher yields, thereby depressing equity prices and increasing pressure on interest rates.

To prevent rate increases, the Federal Reserve may extend quantitative easing (money creation). Ironically, this action may exacerbate the underlying issue: unproductive resource allocation.. Excess funds that generate little added quantity and quality cause price increases of existing stock.

Despite this scenario, housing prices, on average, will decline further due to a larger increase in supply. Inflationary expectations deter profits and future investment, which further depress equity prices and increase interest rates.

This global uncertainty enhances demand for the value and stability of exchange found in gold. Gold requires nearly $500 per ounce to produce. Therefore, its misuse is less likely to distort normal economic markets and activity.

China has been accumulating excess foreign currency reserves of $500 billion annually, nearly three times the total world demand for gold.

Currently gold represents less than 2 percent of its foreign currency. As China diversifies its foreign currency reserve portfolio away from U.S. dollars, gold will become an attractive alternative.

The aforementioned portend further increases in the price of gold going forward.

By Barry Elias

eliasbarry@aol.com, beb1b2b3@gmail.com

Barry Elias provides economic analysis to Dick Morris, a former political adviser to President Clinton.

He was cited and acknowledged in two recent best-sellers co-authored by Mr. Morris: “Catastrophe” and “2010: Take Back America - a Battle Plan.” Mr. Elias graduated Phi Beta Kappa from Binghamton University with a degree in economics.

He has consulted with various high-profile financial institutions in New York City.

© 2011 Copyright Barry Elias - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

http://www.marketoracle.co.uk/Article29707.html