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Gold Seen Hitting $2,500 An Ounce Next Year

Friday, 22 Apr 2011 08:53 AM

Gold is trading above $1,500, quite a high considering it wasn't even worth $300 an ounce 10 years ago. But some say it's going to continue soaring on global inflation fears, possibly hitting $2,500 an ounce by 2012.

Poor faith in currencies is also fuelling demand for the precious metals, especially on financial fears carrying on in parts of Europe as well as in the United States, where the Standard & Poor's ratings agency has threatened to downgrade the country's AAA rating.

"An inflation adjusted high for gold should be $2,500 an ounce in 2012, that amount would be equivalent to the 1980 prices that resulted from global instability and inflation," according to Live Trading News, an online new service that tracks trading trends.

Meanwhile, CNBC reported that analysts at Capital Economics continue to maintain that gold prices will reach $1,600 an ounce by the end of the year and will climb to $2,000 an ounce by the end of 2012.

Spot gold reached another record high Thursday at $1,508.75 an ounce. June-delivery futures touched a record $1,509.60 yesterday on the Comex in New York, the 10th all-time high this month. The exchange is closed today for the Good Friday holiday.

Inflation is becoming a concern across the world, as investors in Europe, the United States and in emerging markets are worried that rising consumer prices will eat away at the value of currencies, which makes gold an attractive hedge.

Rising inflation rates in China are fueling demand for gold, too.
gold200APuseme.jpg
Gold continues to set highs.
(AP photo)

"Worries about inflation had spurred steady physical demand from China, where the government has vowed to use all tools at its disposal, including bank reserve requirements, interest rates and the yuan’s exchange rate, to wrestle inflation under control," Live Trading News reports.

Capital Economics says gold prices will continue to be supported as "slower global growth and lower inflation mean that monetary policy is likely to remain extremely accommodative in the US and in the other major developed economies. What's more, there are plenty of candidates that could cause a fresh bout of risk aversion, including an escalation of the fiscal crisis in the euro-zone."

"It certainly looks as though there are signs that inflation is uncomfortably high within the Asia region," said RBS analyst Daniel Major. "Gold has a role as a perceived inflation hedge."

The U.S. Federal Reserve has not officially said it is worried about inflation, although most agree monetary policy cannot get any looser.

Fuel and food prices are already climbing, and overall inflation rates could really follow suit, especially in light of gaping fiscal deficits, which prompted the S&P warning and sent investors running to the safety of gold.

"The U.S. debt situation got a reality check from the move by S&P," says John Kilduff, a partner at Again Capital in New York, according to Reuters.

"Only precious metals will be seen as attractive in the aftermath of the outlook downgrade. The overall economic outlook becomes more opaque with this; equities and energies will be very much under pressure now."

“The weak dollar is having the most influence on gold at the moment,”  Chae Un Soo, a Seoul-based trader at Korea Exchange Bank Futures Co., told Bloomberg. “The market is getting more jittery now that we have sovereign-debt concerns about the U.S. in addition to Europe and the Middle East problems, which increasingly boosts safe-haven demand for gold.”

And while the debt woes in the U.S. are good for goldbugs, so are financing concerns in Greece, where concerns the country will restructure its debt is shattering confidence and making precious metals look safer.

"There is ongoing concern that the (European) debt problems haven't been fixed. The negative outlook just undermines the role of the dollar as a safe-haven currency," says Leo Larkin, metals equity analyst of Standard & Poor's, Reuters reports.

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Gold is trading above $1,500, quite a high considering it wasn't even worth $300 an ounce 10 years ago. But some say it's going to continue soaring on global inflation fears, possibly hitting $2,500 an ounce by 2012. Poor faith in currencies is also fuelling demand for the...
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Friday, 22 Apr 2011 08:53 AM
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