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Swedish Bank Analysts Gold Predictions

Blog Mar 15, 2010

Commodity analysts from Swedish bank SEB AB said in a report that “the continuation of current debt factors combined with longer-term dollar skepticism are all likely to fuel demand and limit downside risk for gold prices.” (03/02/10, Business Week, Gold Gains in New York on Alternative Investment to Currencies)

This quote was found in Business Week two weeks ago and it points to something important.  Gold is building steam!  More analysts are coming out regularly in favor of long-term gold price increases.

What they say is that the U.S. debt factors are creating gold demand.  The U.S. debt is currently around $12.5 trillion and rising rapidly.  The U.S. government last week reported a record monthly budget deficit for February 2010 of $220.9 billion and is predicting a budget deficit of over $1 trillion dollars per year for the next 9 years.  It is looking like a balanced budget going forward is going to be impossible.  The White House is projecting that the interest payments on the debt will reach $500 million per year by the year 2014.  The National Inflation Association wrote that “We are now at a point where if the U.S. government taxed Americans 100% of their income, the tax receipts generated would not be enough to balance the budget. Likewise, if the U.S. government cut 100% of its spending including defense, but kept paying Social Security, Medicare and Medicaid, we would still have a budget deficit.”

As far as long-term dollar skepticism is concerned, all we need to do is look at the deficits.  All of this money is being “printed” which is what is causing international concern about the U.S. Dollar, and rightfully so.  If we look at just a few examples, Germany 1919-1923 and Zimbabwe most recently, these currencies hyper inflated until they finally collapsed.

If the debt in the U.S. continues to climb and we continue to print money at will, internationally the dollar will continue to loose its status as the world’s reserve currency, inflation will set in at a much higher pace and gold prices will continue to rise.  Limited downside risk to gold due to these factors will continue as the support level on gold will continue to get stronger, making price drops less likely and less severe.

Concerns about inflation and a possible dollar collapse are the primary factors fueling demand for gold in addition to price increase speculation and will likely continue to be the primary driving factors for years to come.

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Lynette Zang

Chief Market Analyst, ITM Trading

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