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