|Gold for your Golden Years|
|Sunday, 09 January 2011 20:03|
In 2010, we witnessed placing new records for gold, upside waves despite many conditions that
normally cause a decrease in the price of gold.
The high price of the U.S. dollar, increasing demand for higher-yields’ assets –stocks mainly-,
and low levels of inflation in many countries, and risks of deflation in countries such as Japan and
Switzerland, all of these reasons were supposed to cause a decline in the gold price, according
to the usual relationship between the price of gold and inflation and between the gold price and
exchange rate for the dollar in financial markets, but in the end, we have seen gold flying very
We start 2010 with optimism in the financial markets that was mixed with fears of European debt
crisis, 2010 entered with expectations that the international economy may witness
acceleration in growth, especially after the announcement that the global economy has come out
of the deepest economic recession and the worst since the period after World War II.
However, we see that the sovereign debt crisis was the pivot of economic concerns and the
pessimism in the financial markets spread more and more following the expectations of the return
of this recession crisis in the European economies again.
Not only European's crisis is the focus of the economic problems in 2010, but also we see that
U.S. economy in spite of its continued growth and recovery, but the weakness appears to be
clear, while we see that the Federal remained concerned about the levels of unemployment that
rose and did not fall with the improvement in the U.S. economy, which pushed the U.S. Federal
finally to indicate that the growth is "non-enough " to lower the levels of unemployment.
Japan has also witnessed tremendous pressure because of the high yen, while china had big
role causing tensions in the international financial markets, where it’s extreme policies towards
monetary and financial policy worried the observers of the international economy.
Greece, Ireland, Spain and Italy all these nations feel the heat in the debt crisis, and
although the focus was on the Greece and Ireland, but we see that the features of the crisis are
obvious in many other countries.
Iran, with it’s political problems, beside declaring that they are buying assets from gold
had a major role also in pushing the price of gold to rise with the last few days of the June. And if
we also take a look to the political tensions in the two Koreas in recent months of
2010, we know that gold is also used to cover the risks of wars as well as the effects of political
tensions on the international economy.
When we review all 2010 Gold movements, we see that gold was waiting any opportunity to rise
even from a single effect, while ignoring the other factors. The main cause of this is the policies of
central banks around the world, and is the quantitative easing policy or similar
policies as well as low interest rates. And we must not forget the impact of the debt crisis
in Europe and the turmoil in the growth prospects in the international economy.
Talking about the coming 2011, it may be positive for gold if the economic conditions continue
as they are now, if the European debt crisis continued and the concerns about high levels of
inflation in Asian countries continued too, and if interest rates continued to stay at very low levels,
all this may be a reason to see the continuation of the upward trend of gold.
But we should know something important, is that the current price of gold between 1300.00 and
1400.00 dollars, this price is a result of all the above mentioned variables, a war of currencies,
quantitative easing, low interest rates, risks of high inflation in some countries and the risk
of contraction in other countries, weaknesses in economic growth in many countries and the
European debt crisis.
Therefore, any increase or decrease in the risk of one of them, or disappearance of any concerns
to any cause of the previously mentioned effects may have a significant impact on the price of
gold over the next year.
Attention should be paid to an important issue, although we do not expect a bigger upside rally
more than what it was in 2009 or 2010, but in case a problem arises, we may see gold rises very
At the end, we could expect a different year for 2011, talking about the high volatility more than
being special year going into one direction, whether it was up or down, despite we expect more
upside action, but we don’t think it’ll effect the whole year as it was in 2009 and 2010.
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