Bright future for gold

Real Assets are expected to remain en vogue in 2011.

In recent days, gold has temporarily traded above the USD 1400/oz mark, and this won’t be the last attempt to sustain a rise above this level. Loose monetary policy in the US, an unwillingness of Asian central banks to divorce themselves from the USD, and sovereign debt concerns related to Europe all continue to be key drivers for higher investment demand. Mounting inflation pressure and asset price “reflation” in emerging markets are already reality as well.

In 2011, these tendencies are expected to broaden and intensify, and the gold market will give governments the benefit of the doubt. The latest statements from the Fed do not indicate a change in stance, but a confirmation of the existing monetary policy. In addition, the battle for a proper fiscal consolidation in the developed world, still in its infancy, is awaiting implementation.

The main concerns related to the euro and the fiscal position of the US government are expected to haunt markets throughout 2011. As a result, the investment demand for gold in 2011 will fill the demand gap of the 1785 tons needed to tighten the supply and demand balance. On the back of higher prices, jewelry demand should grow 3%.

In general, UBS advises that investors to hold on to existing long positions since new positions can be built up close to USD 1320/oz. The only risk to their recommendation lies with a possible tightening of monetary policy conditions across the globe.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.