There are many questions right now about how the gold market will perform in 2012. Posted by James Randolph on December 30, 2011
Gold Investing in the New Year
December 30, 2011 – There are many questions right now about how the gold market will perform in 2012. As 2011 moves behind us, even Goldman Sachs is circulating a note saying, “Not many market participants will lament the passing of 2011.” This is a general truism for almost every investor. Gold, though it has taken its hits, is still the best performing asset of the entire year.
Right now, as the currency troubles in the Euro are depressing the gold price and effectively the gold market, analysts can easily lose sight of the fact that gold has had a stellar year. In comparison, Bank of America stock, at $5 a share, shows how good gold can get.
Technically, it takes a 20 percent move lower to constitute a correction. Since the beginning of the gold Bull Run in 2000-2001, we have witnessed three full corrections, one of which was a 35 percent move downward. Gold, even during the current correction, is still up 9.9 percent on the year, making it a winning investment even in the current climate. The European sovereign debt crisis will eventually even out and gold will continue its upward rise.
The current trend line began with the central bank decision to swap dollars at artificially low rates. This was announced the same day that Forbes reported a major European bank might have almost failed the night before. A liquidity crisis was averted, but now we’re beginning to see some of the costs we will be paying.
The current downward drift in gold was not immediately foreseen as the central banks’ fiscal policy is highly abstract and drawing a distinguishable effect on the market is difficult. Now, however, we’re beginning to see that it has functioned like a steroid, artificially bolstering the system. When the effects of the drug wear off, you had better already own some gold.
The effect on the gold market will eventually be a return to safe haven status as investors flee the growing European problem, political rifts in the European Union, and the instability of the Euro itself for the safety and time-honored stability of gold. This is already happening to some degree, however, a flash point crisis that will begin a new gold rush is entirely possible, though unpredictable.
It is worth keeping in mind, as we begin this new year, that three of the biggest banks in the world, three of the banks with the most notorious names, have all issued reports screaming about the importance and the strength of gold. The permanent low interest rates in the United States are a quantifiable indicator that gold is going to glow. The negative real interest rates hint that gold has a long way to go skyward. These reasons, cited by the reports, are very good technical indicators that gold will be, as they say, a major player in 2012.
Credit Suisse, Societe Generale, and Goldman Sachs have all put out the word on the gold market and political instability elsewhere in the world suggests growth in gold beyond their projections.
Senior Staff Writer – Certified Gold Exchange