What are the odds that the price of gold will reach 2000 dollars per ounce in 2011? Some forecasts and predictions say…
Forecasting or predicting the price of gold is not an easy task. There is not a simple formula or chart to consult when guessing where bullion prices will be in 2011. The entire economy is similar to a living breathing organism with many complex parts. Isolating any one aspect is done with the risk of being inaccurate. The price of gold is a difficult number to determine in the overall economic outlook.
To even begin the less than scientific process of forecasting the price of gold, an investor would need to comprehend what is fundamentally behind gold prices. What drives the price of gold up or down?
Fundamentals Behind the Gold Price Forecast of 2011
First, who is buying gold? There are some business applications for gold such as contacts and wires in semi-conductors, or the use of gold in medical instruments. But has the rising price of gold from 400 to 1,200 dollars per ounce in 5 years really come from the the industrial or even the jewelry market? There is another factor to consider.
The value of paper currency can be quite volatile. The FOREX market will take a currency pair for trading and chart the relationship. Look at how the US dollar and the Yen changed relative values over time. In 2002, one US dollar was worth 135 Yen, and in 2010 this amount fell to a mere 85 Yen. Why is the price of paper currency so unstable?
- Political unrest
- Economic depression
- Rising Inflation
There are many other mico-factors that affect gold prices, but essentially it is seen as a form of currency with backing. Gold trading is an alternative monetary system when the local government is in distress. Gold can be easily traded anywhere in the world so its value is not tied directly into the country of one’s origin. Gold is the warm blanket that many pull around them when fear of the outside world looms.
With the economic and political problems around the world it is easy to understand why many would desire a form of currency that has intrinsic value.
Who is Buying Gold and Driving Prices Up?
When the economy plunges or when political unrest occurs, who buys gold?
In recent years there has been a large surge of interest amongst the commodity market traders, but many others are buying gold too:
- Ordinary people can open up their trading platform and buy and sell future contracts of gold.
- The government can accumulate gold in its reserves. While paper currency is good for funding local projects, gold is a better form of payment when dealing with other countries.
- Banks may add gold to their reserves as well.
- Stock traders can buy and sell gold based ETF’s or exchange traded funds.
All of these sources create a buying and selling pressure that will ultimately drive up the price of gold or crash it down.
Price of Gold Forecast and Prediction for 2011?
There is no definitive answer to where the price of gold will be in 2011. The best an investor can do is to look at possibilities based on historical data. If an investor assumes that paper currency will continue its debasing trend, what would be a high estimate on gold prices per ounce? To answer that one needs to look for the highest that gold has been in the past.
January 21st, 1980 saw the price of gold reach 850 US dollars per ounce. To understand how much money this is worth today one would need to adjust the figures according to the Consumer Price Index. 850 dollars in 1980 is worth 2,250 US dollars in the year 2010. If gold were to repeat the value of a previous high it could double from the price it is trading at in June of 2010.
Other analysts suggest that because the current economic output is many times greater than 30 years ago, the peak price of gold could even reach 5,000 dollars per ounce.
On the other hand the argument could be made that markets are based on mass psychology and trader emotions. Some might suggest that the average person would not believe that the price of gold could ever reach up to 5,000 dollars, thus creating a resistance to that level ever being achieved. Some analysts believe that as the market recovers in 2011 and beyond, the price of gold will retreat dramatically as the economic woe gets pushed to the backs of people’s minds and their hedging tactics are tossed aside.
How to Play the Gold Market
Nobody has the complete picture on the future of gold prices. If one feels that the current economic and political unrest are a sign of things to come, then gold could very well continue its advance in price. If one feels that the economy will continue to recover then they should exercise caution when buying gold related investments.
Jeffery Nichols, “High Gold Price Volatility Sees Almost $90 Fall Before Small Bounce,” 08 December 2009, Mineweb.
M.R. Subraman Chennai, “Where is Gold Headed?”, Nov. 29, The Hindu Business Line.