Tags: gold | rally | economy | metal

Gold Rally Seen Continuing for the Long Run

By    |   Friday, 09 March 2012 07:51 AM

Gold prices will continue to rise. The recent decline is just a pause before a long-term bull market, an expert predicted to CNBC. 

Ongoing low interest rates combined with high demand are now driving the price of gold, says Charlie Morris, head of absolute return at HSBC, according to CNBC.

The price of gold dropped 5.4 percent on Feb. 29, its biggest drop in three years. But Morris, who holds about 5.5 percent of his portfolio in the metal, predicts gold will reach a new high early next year.

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The Dow-to-gold ratio, or the number of gold ounces it takes to buy a share of the Dow Jones Index, is a good measure of gold's value, he says. And the ratio shows that gold has been outperforming stocks since 2002 — and continues to do so.

“The whole reason gold is brilliant is that it has an above-ground store and all the gold that has been mined in history is still here," Morris told CNBC.

Other investors warn of volatility.

"As you move it from store of value to investment trade, as ETFs dominate flow, volatility becomes more intense," Peter Toogood, head of investment at Old Broad Street Research, told CNBC.

"The rest is a store of value argument," he adds. "I think it becomes primarily a function of investment demand and it means it becomes inherently more volatile."

Gold prices move with euro and inversely to the U.S. dollar. Its price increased as optimism over the most recent Greek rescue deal grew.

"Gold is up because there is growing evidence that there will not be a hard default in Greece," says Bill O'Neill, partner at commodities investment firm LOGIC Advisors, according to Reuters.

On the other hand, indications that the Federal Reserve will not pursue more quantitative easing reduced its value as an inflation hedge and pushed its value down.

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