The price of gold has been staying steady above its four-figure mark, and investment in gold and its related exchange traded funds (ETFs) has drawn many seeking to strike it rich. But will gold’s uptrend last?
Gold has held onto its $1,000/ounce price level but in real, or inflation-adjusted, terms, the precious metal is short of its all-time high, writes Paul Amery for IndexUniverse. After adjusting for the effects of U.S. consumer price inflation, it is calculated that gold’s 1980 peak price of $850 roughly equals $2,358 today.
Daniel Brebner and Deutsche Bank attribute inflation, inflation volatility and the performance of the U.S. dollar as the main drivers of gold prices. Brebner argues that gold does well in deflationary periods when gold is seen as a safe haven, and in inflationary environments when gold is hedged against money over supply. He sees periods of disinflation, or moderating inflation, as the bane of gold prices.
Currently, there are inflationary and deflationary voices in the market. But, Brebner sees that uncertainty over future price levels means inflation volatility, which he has said is bullish for gold.
Investor demand for gold is on the rise. China is seen as likely to purchase a hefty chunk of the world’s gold as it seeks to accumulate hard metal assets. And, of course, demand for gold ETFs is also increasing as gold investments become more popular.
Deutsche Bank says that if there is moderating risk premiums, low but contained inflation and recovery from financial crisis, gold could drop back to $650/ounce. If the markets are less benign, on the other hand, gold prices could reach up to $2,500.
Meanwhile, a pullback for silver is seen as in the cards after the recent run-up, reports Geoff Candy for Mineweb. RBC Capital Markets feels that despite the pullback they’re predicting, they’re still feeling positive about the metal because of a weakening U.S. dollar, which could continue to boost the price of precious metals. They also feel that growth in the industrial sector and investment demand will offset the drop in demand for silver in photography.
- SPDR Gold Shares (NYSEArca: GLD): up 14.2% year-to-date
- iShares COMEX Gold Trust (NYSEArca: IAU): up 14.2% year-to-date
- PowerShares DB Gold (NYSEArca: DGL): up 12.8% year-to-date
- ETFS Gold Trust (NYSEArca: SGOL): launched earlier this month
For more information on gold, visit our gold category.
Max Chen contributed to this article.