A couple of days ago gold hit another price record, exceeding the level of $1600/oz. The psychological barrier is overcome. What will happen to gold prices in the short run? If they keep growing what are the targets? Or maybe the prices have already reached the top and are about either to decline slowly or to collapse?
Why does gold keep getting more expensive?
According to the experts , the reasons for such growth are evident:
· The eurozone’s financial crisis. 3 states are on the verge of default – Greece, Portugal and Ireland (Italy and Spain well may join the company). The same thing happened in 2010 when Greece asked for financial aid for the first time.
· Uncertainty about the US debt ceiling problem. After the federal debt limit was reached it was time to raise it higher but the Congress refused to do that, thus pushing the US to the verge of technical default. Obama’s Administration and the Congressmen still cannot resolve the issue. They still have a week and a couple of days to do that, but the time is running short. Even some rating agencies warned the US that they might downgrade its sovereign rating for the first time since 1917.
· Natural disasters in Japan. Japan’s economy and national currency suffered greatly.
· Unrest in the Arab World. The chain of revolutions in the Arab countries undermined the confidence in crude oil as a safe asset.
· Growing inflation in China and India. These two countries are the world’s biggest consumers of gold.
Investors keep looking for safe heaven assets to preserve their capitals during the time of instability. They do not trust currencies and do not believe that the governments of the world’s leading countries can solve economic and political problems.
As a result, according to , since the beginning of the year gold has gained in value over 13%.
Central banks are in need for gold
The experts of paid attention to another aspect – central banks around the world are getting increasingly interested in gold:
· During the period 2000-2008 the net amount of gold stored in the reserves of central banks around the world declined by 9.6%. From 2008 till 2010 the reserves grew by 2.2%. The bankers learned a lot from the global crisis.
· Over the period of 2000-2009 the People’s Bank of China nearly tripled its gold reserves - from 395 up to 1054 tons. The current reserves of gold are probably more substantial because China reveals this kind of info once in 5-6 years. April 2009 was the last time the info was published.
· Over the same period Saudi Arabia’s central bank more than doubled its gold reserves (323 tons).
· The Bank of Russia bought 22.5 tons of gold in Q1 2011 and 19.5 tons more in April and May.
· The Bank of Mexico bought 93.1 tons of gold in Q1 2011, thus making its reserves 14 times bigger.
· All in all, the world’s central banks bought 127 tons of gold in Q1 2011. They almost stopped selling gold and kept buying it.
Can gold keep getting more expensive?
While there is growing demand for gold the prices will be growing with it, the experts of say. According to the World Gold Council, in Q1 2011 the demand for gold increased by 11% as compared to Q1 2010 (while the average price gained 25%). Gold will keep getting more expensive in the coming months:
· A month ago Richard O`Brien, CEO of Newmont Mining, warned that gold would reach $1600. Yet this is not the limit because China and India’s growing middle class will keep creating the demand for gold.
· China and India are the world’s major consumers of gold in the form of jewelry, coins and bullions. Over the last 12 month they have bought 1543 tons of gold. In early 2011 China outpaced India in terms of gold purchases for the first time.
· Basing on such an appetite for gold, the analysts for Standard Chartered expect gold to reach $2000/oz by 2014 and $5000 by 2020.
According to the Department of Masterforex-V trading system , in near-term perspective the annual growth of gold mining won’t exceed 3.6% which means that gold will be in short supplies (in deficit). The futures of gold keep rallying in the form of wave c(C ) of Daily2 within the scope of the major uptrend.
1640,0 and 1700,0 – the closest level of resistance. A retracement of reversal can be considered after the price breaks below the MF pivot and sloping channel (as shown in the picture below).
