subject: How high will gold climb? [print this page] Last week I wrote that the next price barrier for gold is $1300/oz and recently the price has been hovering around $1298/oz for few days. Few months ago most analysts expected the gold price to be on these levels by the end of the year but recent news from America and Japan has encouraged investors to jump on board faster than predicted.
Last week the Japanese government announced that they will interrupt the markets by weakening the Yen for the first time in six years. This is a rather significant move from the Japanese government since they haven't injected any stimulus into the markets since the last recession in 1990s. The falling Dollar has caused problems in Japan since their large exporting industry has been suffering because of the strengthening Yen and the government was forced to take actions. All this is gold positive because one more of the few reserve currencies have been manipulated by the government.
The counter strike from the Dollar came on Tuesday when the FED announced the readiness to introduce a new round of quantitative easing to boost the economy. After the announcement gold has been very close to the $1300/oz mark and once this level is reached, investors need to revalue their price targets once again.
The depreciation of the Yuan compared to the Dollar has caused a growing tension between The U.S and China in recent weeks. The U.S is blaming the cheap Yuan for its economic issues and even financial sanctions against China have been on the cards. If these two giant economies are starting to threaten each others, the impact on the ever slowing recovery could be enormous. Both of the nations are key players in the global economy and how they manage to support the economic growth and stability will have a major effect on all economic regions.
According to the IMF, a growing number of central banks, especially from Asia, have been topping up their gold reserves in the last 12 months. Russia, China, Saudi Arabia, India, Mauritius, Bangladesh and Sri Lanka have been the main purchasers and the changing attitude towards gold investments from central banks has encouraged investors to buy gold.
Gold has gained 17% since January and has been the best performing asset by miles. Still most people don't see gold as an investment since it doesn't pay any dividend. This is a totally wrong approach to hard asset investing. Investors should keep gold in their portfolios to balance the risk aspect of investing. Every time something goes wrong in the global economy, people go for gold. This has been proven several times in last few years and is likely to be proven many more times before the recession is over.
