Despite hanging around $1,400/oz for the last couple months, gold appears poised to break out of its range and head towards $1,600/oz and beyond˳ Gold has been displaying a natural consolidation pattern after having gone though a large upward movement during the last 6 months˳ This consolidation pattern will ultimately fail as pressure mounts, leading to what is referred to as a breakout in technical terms˳ It is irrelevant whether or not gold prices reach $1,600/oz in 2 months or 6 months from now because the fundamental forces driving gold’s upward trajectory on a short and long term basis remain firmly in play and $2,000 gold prices are highly likely within the next year or two˳
Short Term Fundamentals
First we have the debt problems taking place in Europe’s peripheral economies˳ As these problems continue to intensify, so too will a lack of confidence in the overall health of the European Union˳ These factors will only increase the likelihood of the European Central Bank having to continue to print money in an effort to stimulate the economy, a course of action that will only weigh on the value of the Euro currency˳ If you include the fact that the United states is already engaged in a quantitative easing campaign, it should be pretty easy to conclude that neither the Euro nor the US Dollar are attractive investments at this time˳ It would be nice to see economic data suggesting that our economy is recovering nicely, but economic data, particularity employment figures, continue to disappoint, ensuring continued currency depreciation in an effort to stimulate economic growth and strong demand for precious metals˳
Second is the fact that governments around the world are in a race to devalue their currencies in an effort to revive economic growth through cheaper exports abroad˳ As unethical as it might sound, a good way to depreciate a currency is to delay resolving economic problems, in turn compelling investors to lose confidence in the underlying currency˳ For example, officials in the European Union will be slow to implement a plan of action addressing the debt problems in the peripheral European economies because they are aware that the longer they delay, the weaker the Euro gets, and the more attractive their exports become˳ There are side effects when you delay fixing a problem like this, primarily in the form of higher borrowing costs, but a devalued currency in an economic environment such as our current one makes up for the difference˳ Also, if borrowing money at a reasonable rate is necessary, Europe’s struggling peripheral economies can simply bypass international debt markets and receive capital directly from the EU˳ This is one of the many examples of how governments are engaging in the so called “currency wars,” and another reason why investors continue to buy gold˳
Longer Term Outlook
Worldwide gold investment demand remains strong, especially in G7 countries that have central banks primarily diversified in the Euro and US Dollar˳ These countries are more eager than ever to diversify a portion of their reserves into gold (central banks typically buy gold bullion)˳ Of equal importance is the fact that China, a country with a population north of a billion, imported 5 times more gold in 2010 than it did in the previous year˳ Also, Chinese citizens are for the first time being encouraged by their government to buy gold coins and jewelry˳ When you add the fact that demand for gold is greater than the amount being mined from the ground, the argument for buying gold as an investment is easy to make˳
The bottom line is that governments continue to stimulate economic growth through the devaluation of currencies, and all assets denominated in paper are losing value at the same time˳ If an economic recovery ensues and there is no need for further economic stimulation, gold will still remain in high demand as new money from emerging economies is put to use˳ Roughly 100 million people across the world are entering the middle class every year, and they will want to get their hands on gold just like everyone else˳
Source by https://ezinearticles˳com/?Gold-Prices-Should-Reach-$1,600/Oz-Without-Any-Difficulty&id=5632176
