The extended rally in gold and related exchange traded funds (ETFs) brought gold prices to new all-time highs. Prices have risen to the point that the question on the minds of many is whether conditions favor this trend continuing.
High gold prices, recently touching $1,049.70, suggest that investors are still concerned with a pending inflationary period because of excess government spending and lax monetary policies, remarks Pham-Duy Nguyen for Bloomberg.
Could gold possibly go higher? Some think so.
Deutsche Bank AG suspects that gold may reach $1,100 in 2010, and Mark O’Bryne, executive director at GoldCore Ltd., thinks gold may reach $2,000 on demand for a hedge against financial risk. Phillip Gotthelf, president of Equidex Brokerage Group Inc., expects gold to hit $1,250 by the end of the year. Gotthelf says gold is gaining because investors are using it as a hedge against changes in world monetary standards.
According to BBC News, certain factors are pushing up gold demand and prices, including:
- Weak dollar. Low interest rates and copious economic support packages have depreciated the dollar. Currency traders are turning away from the dollar in hopes of gaining value elsewhere.
- Speculation. Institutional hedge fund investors are pouring money into gold. People are also borrowing money at low rates and turning it around into the gold market.
- Inflation. You may have recall hearing about gold being a hedge against inflation.
- Psychology. Gold has traditionally been a safe-haven investment that gives people comfort in uncertain times.
- Seasons. China and India buy gold during their traditional holiday seasons as gifts. Farmers in the region also use gold as a way to store profits after harvests.
- SPDR Gold Shares (NYSEArca: GLD): up 18.3% year-to-date
- iShares COMEX Gold Trust (NYSEArca: IAU): up 18.2% year-to-date
- PowerShares DB Gold (NYSEArca: DGL): up 16.8% year-to-date
- ETFS Gold Trust (NYSEArca: SGOL): up 5.4% since Sept. 9 inception
For more information on gold, visit our gold category.
For full disclosure, Tom Lydon’s clients own shares of GLD.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.