Gold in 2011

2011 trends report

Gold

 

Since 2001 the price of gold per ounce has risen 500%, trading at about $300 in 2001 to an all time high of over $1400 at the end of 2010, making most of its gains in the recent years.

Most of the gains made by gold between the years 2008 and 2010 were made partly due to increased demand by investors amongst the federals reserve moves to ‘prop’ up failing banks by using quantitative easing [printing money].

As the Federal Reserve dumped hundreds of billions of dollars into the US economy, diluting the money supply and thus lowering the value of the dollar, gold has turned into a very attractive way to hedge against possible future inflation.

The rise in gold and other precious metal prices may also reflect a loss in confidence in the dollar from investors as gold has always maintained intrinsic value derived from its natural supply limit, whereas FIAT currency can simply be ‘manufactured’ by governments.

The relationship between the value of the dollar and gold is evident from these 2 graphs by their inverse correlation.

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Forecasting the price of gold is not an easy task, there isn’t a formula to consult when predicting where gold prices will be in 2011. To make any sort of informed guess as to the destination of gold prices one must consider the factors that drive the price of gold in the first place.

The precious metal has some business applications, such as contacts and wires in semiconductor and its use in medical instruments. But has the rising price of gold from $400 to $1,400 per ounce in five years really come from the industrial or jewellery markets?

Another factor that cant be ignored and was previously touched upon is the value of paper currency and its volatility. For example in 2002, one US dollar was worth 135 yen, but in 2010 it was worth only 85 yen a fall of 50 yen in a 8 year period. The instability of any form of paper currency comes from.

  • Political unrest
  • Rising inflation
  • Economic depression

amongst many other micro-factors contributing to fluctuations in paper currencies of countries.

Gold is seen by investors and traders as a form currency with backing, with its value directly tied to its rarity and natural supply limit, gold can be traded with some ease anywhere in the world so its value is not tied directly into the country of one’s origin.

Gold has always been the duvet that many pull around them when fear from the outside world looms.

We at trends report predict the price of gold will raise $1,600 per ounce by the end of the first quarter of 2011 and to $2000 per ounce by the 3rd quarter of 2011. Driven mostly by faltering confidence in the dollar [and other currencies], and the diminished confidence in the bond markets, investors will look toward a commodity that cannot be printed or manufactured. Prices may also be influenced in 2011 as the FED hint upon additional quantitative easing, along with the Chinese and Russian government’s contraction of their dollar reserves, 2011 is looking like another record year for gold.

We also foresee similar trends for silver and other precious metals in 2011, silver possibly rising to $40-$50 per ounce by the end of the first quarter of 2011 and between $50 and $70 by the end of 2011.

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