Investment Advisors are mixed on Gold’s prospects – What else is new?

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If there is one certainty in the investment world, it is that every advisor has an opinion on Gold, the precious yellow metal that we cannot seem to avoid having in our portfolio, based on its stellar performance over the past decade. It would not be such a topic for discussion, if it were not for the fact that these opinions typically range over very wide extremes, with incredibly complex explanations justifying either a dramatic rise or fall in Gold valuations over the next few years.

Since Gold over 2012 was hovering within a fairly tight range, at least for Gold, the range of prognostications for 2013 and beyond are both entertaining and conflicting in their insight tones. There is wide disagreement, but future bragging rights can only be earned if you are willing to go out on a limb. Most all guesses start with a general consensus that Gold’s prospects will be mixed in 2013, perhaps, a gradual rise in value, as the global economy slowly recovers. From that point, estimates vary in line with how major influencing factors may pan out down the road.

Let’s start with a popular technical chart that is being bandied about Gold-bug circles:

Gold prices

Gold prices hit their high when the European debt crisis came unglued in late 2011, establishing the upward “Overbought” channel boundary depicted on the diagram. For the past year, Gold, however, has languished, as uncertainty gradually seeped out of the market. Technical analysts now believe that the lower “Oversold” channel boundary is a harbinger of good things to come. Could Gold run up to $2,200, a conservative guess, or top out at a more aggressive value like $3,400? You be the judge.

It is very easy to draw lines on a chart, but, as every investor knows, it is the fundamentals that drive market valuations and determine the eventual direction that prices will take. The current thinking is that inflation will drive values eventually. When the economy heats up, interest rates will have to rise, and rising prices will take Gold right along with them.

If some unexpected crisis occurs in the Arab world or in the Euro arrangement or anywhere else, for that matter, then the “safe haven” status of Gold will attract investors in droves, driving up the price once more. Currencies and Gold are often correlated in many ways, too, and the word on the street is that currency wars are in the offing. Look for central bankers to create a storm on paper assets, and Gold always provides a safe shelter in such situations.

What are some of the opinions along these fundamental grounds?

  • Some analysts point to the U.S. housing market, claiming that it is coming back, soon to resume a steady 2% average annual appreciation rate once again. Interest rates would follow, as would inflation, and Gold would be the obvious beneficiary;
  • Gold bears, however, stress that the enormous debt in the global system is the real problem. They suggest that Gold is extremely overvalued, but they have been suggesting this hypothesis for years. They may eventually be right, but others counter that central bankers will continue to print money, rather than endure deflation. Gold wins in this argument, if it is correct;
  • The contrary opinion focuses on China and India. Most argue that there is pent up demand for Gold across the globe, but especially in these two countries, where burgeoning middle class families equate status with Gold ownership. Both countries plan to levy consumption-type taxes on the metal in the near term, which may lead to a slackening of demand, i.e., lower prices for Gold;
  • Goldman Sachs shocked everyone in January with a $1,200 price projection for Gold by 2018. Oops!

Will Gold prices fall or rebound higher? If we knew that answer, we could all be rich!

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