In recent weeks, gold experienced a correction and has been trading sideways in the $1600 to $1700 range. Other commodity prices have declined more dramatically, leading some investors to believe that gold is headed for a bigger fall. However, many analysts believe that numerous bullish factors will push gold prices higher.
First, investors are still looking for safe havens, particularly safe havens that provide a decent rate of return. Fitch has just downgraded the sovereign debt of Spain and Italy, and Moodys has placed Belgium’s credit rating under review for downgrade. Investors are certain to remain jittery about debt problems in the Eurozone, prompting gold prices to rise.
Even with the recent 10 percent drop, gold prices are up about 17 percent for the year. Hedge fund managers, mutual funds, annuities, and money managers want to make a profit this year and time is running out for them to do so. Gold may provide them with the opportunity to make money safely or at least shield them from stock market losses. Paula Bujia of the Schroders Gold and Precious Metals Fund notes that even a relatively small investment in gold would have shielded investors from recent stock market losses. She says that fear in the market is preventing many equity traders from making money and that rising gold prices make gold a safer bet than stocks right now.
Analysts are particularly bullish on gold. Credit Suisse has raised its forecast for gold prices for 2012 to $1850, and Morgan Stanley expects gold to rise to $2200 in 2012. The September jobs report shows that US job growth remains weak. Interest rates in the US will remain low, and the Federal Reserve is ready to increase the money supply, if necessary. The European Central Bank may cut interest rates and will probably print more money to deal with the European debt crisis. Russ Koesterich, an investment strategist with BlackRock, points out that gold tends to rise when currencies depreciate. He says that low inflation, the US deficit, low interest rates and weaker currencies are all factors that favor higher gold prices.