Tags: gold | rally | debt | ceiling

Gold Bulls: Fundamentals Point to Further Rallies

Monday, 31 Dec 2012 09:07 AM

Gold prices may have recently cooled their rally that has extended for over a decade now, but 2013 should see more gains, gold bulls argue.

Central banks worldwide have moved to stimulate their respective economies in recent years by cutting benchmark interest rates and by injecting financial systems full of liquidity.

Such moves tend to weaken paper currencies and stoke fears of inflationary side effects, a recipe for rising gold prices.

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While 2012 saw investors snap up positions in U.S. government debt to cut exposure to the European debt crisis, which cooled gold’s gains, fiscal uncertainties in the United States today could entice those investors back out of the greenback and into the yellow metal.

Use the U.S. debt ceiling as a weather vane — right now, it stands at $16.4 trillion and if Congress lifts it, gold will move in tandem.

“Since 2008, gold has correlated the best with our national debt ceiling,” Edmund Moy, chief strategist of Morgan Gold and a former director of the U.S. Mint, told CNBC.

“Whenever gold has been above or below the debt ceiling, it will normalize to wherever that debt ceiling is,” he said.

“If Congress lifts that debt ceiling to $18 trillion, I see gold rising to $1,800,” Moy added.

Gold is trading around $1,655 an ounce, down from a record high of just over $1,920 an ounce hit in late 2011.

Other market participants agree that U.S. political uncertainty marked by the government’s inability to push through fiscal reforms will push up gold prices as the asset takes on safe-haven appeal.

“Gold prices have been an economic and political barometer for the well-being not just of the economy, but of the world,” said George Gero, vice president of global futures at RBC Capital Markets, CNBC added.

“There have been plenty of problems, and we’re going to return back to basics after the fiscal cliff,” Gero added.

“Sometime after January, people are going to take a second look at the world and say ‘you know what, I do need someplace to put my money.’”

Analysts at Barclays predict gold to hit $1,815 an ounce for 2013, though they said the greenback should firm anew as the U.S. economy gains steam, possibly heralding an end to the rally, Forbes reported.

“Whatever happens, 2013 is setting up to be an historic year for the yellow metal. Continued Fed easing could push gold to new all-time highs, but the possibility of a stronger U.S. recovery in the second half of the year could put an end to what has been one of the most lucrative trades of the past 10 years,” Forbes added.

“Investors will have to keep a close eye on fundamentals.”

Other experts point out that economic uncertainty in Europe and Asia will bolster the precious metal as well.

Central banks around the world — in Asia especially — have been buying gold to diversify their reserves, which will also support prices.

“The problems we’ve seen over the last year haven’t disappeared,” said Thorsten Proettel, a commodities analyst at Landesbank Baden Wuerttemberg in Stuttgart, Germany, according to Bloomberg.

“There is still lots of potential for trouble in the world and that is a good reason for people to stay in gold or buy more.”

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