In early trading this morning gold briefly broke $1,300 per ounce. So is it possible that it is topping out or could it go higher from here? People in the media are always tempted to state that gold is topping out, which seems to happen every time it breaks a psychological resistance level, but there still exists many compelling reasons to believe that it will go higher from here and that now is a great time to buy gold.
Inflation fears are probably the most prominent. As the Federal Reserve continues to print money, fear of future inflation will only stoke the gold fire. Take the last gold bull market of the 1970’s for example, gold rose dramatically as inflation hit double digits. Inflation has not been a near-term problem as of late, yet gold has still risen, which brings us to fears of deflation.
Deflation and fears of an economic slowdown have not gone away. In fact, they seem to be heating up as the Federal Reserve is looking to do another round of quantitative easing, making investors uneasy. Investors buy gold when they are nervous. So either way you look at it, inflation or deflation, it is possible that gold will rise either way.
Gold is also a systemic risk hedge. Whatever crisis you can think of that might come to fruition in the years ahead is a great reason to buy gold. It has proven to retain its worth and even grow during these times. Gold has almost doubled since the banking failures of 2008 (compare to November 12, 2008 close of $709.80).
In addition to the problems we are experiencing at home in the US, Europe is continuing to have difficulties which are further complicating a recovery worldwide. For gold to stop its rise, the economy would need to strengthen to the point where the government didn’t need to print money, the dollar gets stronger and problems in Europe correct.
“The underlying bullish trend in the gold market continues to be fuelled by the high level of uncertainty regarding the United States and European economies,” said SEB Commodity Research analyst Filip Petersson.
“Wealth preservation are the keywords. As long as we do not see a reduction in the uncertainty regarding the long-term economic outlook, gold prices will remain well-supported as the currency of choice for risk-averse investors.” He added that “the strategic view remains bullish (positive) and we expect prices above 1,350 dollars per ounce before the end of the year.”
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Chief Market Analyst, ITM Trading