Gold prices have been continuously growing since October 2008 when the global financial crisis made investors flee stocks, bonds and housing markets in search of safe-haven assets. It is not accidental that 2012 was a bullish year for precious metals such as gold, silver, platinum and palladium while most currencies (including the US Dollar, the Euro, the British Pound) were flattish.
Will the tendency remain bullish in 2013? What levels may gold prices reach and why? Are there any hidden factors that may drive the market? Let’s try to answer these questions together…
Expert Opinion: Gold Rallies On Hidden Factors
According to experts, gold prices are driven by hidden factors. Analysts like to say that positive factors have almost no positive impact on the market. However, we should still use the al the available information to try and make a comprehensive picture.
1. Iran is buying gold. The Iranian finance minister announced the government’s plans to abandon the US Dollar and the euro currency in external trade. Private Iranian companies were instructed to switch to the Iranian Rial. According to him, everything is ready to start a new external-trade model. The sanctions imposed on Iran by the USA and Europe made Iran transfer almost all of its currency reserves to gold, which turned out to be beneficial.
Moreover, in early 2012, the Iranian authorities announced their readiness to accept gold as a means of payment for crude oil. Iran concluded an agreement with Turkey, India and China. So, the new system will most likely be based on gold.
2. China keeps increasing its gold reserve as well. The chart below, courtesy of Zero Hedge, reflects the dynamics of China’s gold import from Hong Kong in 2012:
Therefore, in 11 months China imported 720 tons, thereby spending $40bn. For comparison sake, in 2011, China’s gold import was only 392.6 metric tons.
If to consider the fact that China is the world’s biggest investor, we should pay attention to the following facts:
In 2012, China invested only $12.7bn in US bonds
In 2011, it was $15.8bn.
experts say: If to combine those facts, we can conclude that China is getting rid of US Treasuries in favor of gold. The Chinese authorities seem to start losing confidence in the US Dollar and other major currencies.
These are forced steps as the current bond yield is very low.
An interesting thought: Maybe the Chinese know the secret - when gold prices rally, bonds stop being safe-haven assets. If this is the case, bonds get discounted, i.e. the body of the bond depreciates in value. That is why they say that any gold price above $4000 an ounce will blow the US bond market. We can go further to see that platinum and palladium prices keep growing will gold prices are deliberately hindered at the bottom.
The Chinese government can afford to conduct independent policies. They catch at every single chance to consolidate the national economy in effort to separate China from the global financial bubble before it bursts.
That is why China was getting ready to accept the “Basel III” banking standards. The new regulation was planned to take effect on January 1st 2013.
When the USA decided to delay the implementation of Basel III, China responded that it would start the regulation according to the plan (on Jan 1st).
Since then, 10 more countries have decided to join China. These are Australia, Hong Kong , Canada, Mexico, Saudi Arabia, Singapore, Thailand, Switzerland, South Africa and Japan.
The countries that emit the world’s major reserve currencies – the USA, the EU and the UK – still cannot afford it… or do not want… this doesn’t matter. The key thing is that gold gradually becomes a major part of the contemporary global financial system.
All these factors are secondary. Other factors include higher demand for gold in India, record-high purchases of gold bullions and coins, Combibar Gold Card (a new investment product – a 50g divisible gold bullion introduced by Swiss precious metals firm Valcambi – it can be used as an emergency currency).
Global Economy – Major Driver For Gold Prices
The major factor driving the market of gold is the global financial system. The USA is its heart. Therefore, the US Dollar is the major market driver. The US Dollar and gold are in negative correlation.
The US economy is faced with the choice: either to collapse or to slow down. Anyway, it will affect the global economy and financial system. If the US Congress fails to raise the debt ceiling, the White House will announce that the USA will have to default on its debt. Otherwise, we will see the fiscal cliff.
Analysts and officials can keep persuading us that the economic situation in the USA is improving. There are several weeks left till the climax. Another crisis is coming. The global economic prospects are gloomy. Moreover, QE3 started by the Fed is another bearish driver for the US dollar. Therefore, there only one direction for gold prices… up to new highs…
The chart below, courtesy of , reflects the current state of affairs in the market of gold.
