Whether measured from its all-time high of $1,432.50 recorded on Dec. 7 or its year-end closing price of $1,420.75, gold’s decline to the $1,340 area in January is no more than a minor correction in its 10-year-long bull market.
Indeed, with gold’s fundamental price drivers all remaining supportive, I expect another strong advance over months ahead — with gold rising to $1,700 an ounce or higher by year-end 2011. Longer term, I wouldn’t be at all surprised to see it at $2,000 and even $3,000.
Here are the key “bull points” for gold in brief:
➤ Stimulative U.S. monetary policies, irresponsible U.S. fiscal policies and an uncertain outlook for the U.S. dollar.
Despite some hopeful economic indicators here and there, persistent recession-like business conditions — especially the weak housing sector and high unemployment — give the Federal Reserve no alternative to its continuing accommodative and ultimately inflationary policies.
➤ Worries about the financial health of some of the euro-zone economies and the viability of Europe’s common currency.
A growing disparity between the stronger “core” economies and the weaker “peripheral” economies will continue to threaten the viability of Europe’s common currency, the euro, with capital flight and speculative money flowing into both the dollar and gold — contributing to the metal’s expected appreciation and masking the dollar’s weakness.
➤ Higher industrial and agricultural commodity prices and rising inflation expectations will promote investment and speculative demand for gold as an inflation hedge.
Global commodity inflation is already on the rise with higher prices for food, oil and raw materials already up sharply during the past year. Despite economic slack in the United States and Europe, rising demand in the fast-growing emerging nations is creating shortages and higher prices everywhere — and this is now beginning to show up in U.S. and European consumer price inflation.
➤ Increasing central bank interest in gold as an official reserve asset.