Gold prices look well supported at $1100 and will hit its record high of $1,227 by mid-year and $1500 by year-end, according to Jeffrey Nichols, precious metals economist and Senior Economic Advisor to Rosland Capital.. However, the market will experience continued volatility with big swings in both direction around an upward trend this year and beyond, he added.
Here are Jeff Nichols takes on the recent gold price activity:
- Gold's strong negative correlation with the dollar, measured against either the Euro or a basket of currencies, is breaking down. - This is positive forward-looking indicator of gold's coming strength. Historically, gold's biggest advances have occurred at times when gold was moving up against not just the dollar but the other major currencies as well - and it looks like we are entering just such a period.
-India is buying more gold these days, as purchases are up ahead of marriage season which could provide additional support.
-Turning westward, gold's recent rally to record highs in euro and sterling is a sign of the metal's broadening appeal to European investors in the face of European sovereign debt fears. Some investors selling the euro have chosen gold - in addition to or in place of - the greenback as an alternative.
-After the sovereign debt crisis in Europe, USA may be next in line-historically high government deficits and accumulated debt-present in the United States.
-Indeed, the single-most important factor promising higher U.S. dollar-denominated gold prices are inflationary U.S. monetary and fiscal policies characterized by:
unprecedented provision of liquidity into the financial system,
unprecedented low interest rates for an extended period,
unprecedented Federal budget deficits and accumulated debt in absolute terms and as a percentage of GDP, and
a dysfunctional government that remains incapable of dealing effectively with these immense issues.
-China will continue to be a bullish factor in gold market despite recent monetary tightening.