Tags: gold | records | 2013 | rally

Experts: Gold Could Break Records in 2013, Though Rally in Danger

Friday, 21 Dec 2012 07:49 AM

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Gold prices could hit record highs in 2013, thanks to loose monetary policies at the Federal Reserve, though the rally may be short-lived, experts say.

The Fed has taken repeated steps to stimulate the economy since the 2008 financial crisis, with the dollar weakening with each intervention.

Stimulus tools have included slashing benchmark interest rates to rock-bottom levels to more unorthodox measures such as quantitative easing (QE), under which Fed buys bonds such as Treasurys or mortgage debt held by banks, pumping the financial system full of liquidity in the process to make sure borrowing costs stay low across the economy.

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The Fed is currently running a round of quantitative easing in which it buys $85 billion in mortgage-backed securities and Treasury holdings a month from banks.

Previous easing rounds injected over $2 trillion into the economy in the past four years, weakening the dollar and fueling fears of rising inflation rates, a recipe for climbing gold prices.

Gold is trading just shy of $1,650 an ounce, down from a record high of just over $1,920 an ounce hit in late 2011.

European uncertainty and cooling Asian economies have kept investors parked in safe-haven dollar positions, though gold could resume its ascent now that the Fed and other central banks are ramping up monetary stimulus measures, which makes paper currencies an iffy long-term buy.

“Going to cash is never bad if it’s short-term,” said George Gero, commodities expert at RBC Capital Markets, who expects gold to continue to rise in 2013, Forbes reported.

Bank of America, meanwhile, expects gold to average $2,000 in 2013 and even higher by the end of 2014 due to loose monetary policies at the Federal Reserve, the European Central Bank (ECB) and also due to strong physical demand from China.

“We expect large-scale policy easing by the Fed and the ECB should push gold prices higher,” the Bank of America Merrill Lynch analysts wrote, forecasting gold prices at $2,400 for the end of 2014, according to Bloomberg.

“A stronger Chinese economy will likely lend support to supply constrained metals next year, and we expect copper prices to average $7,750 a ton in the fourth quarter of 2013.”

Barclays’ analysts predict $1,815 an ounce for 2013, though they predicted the greenback to begin firming again next year as the U.S. economy gains steam, possibly heralding an end to the rally, Forbes added.

“Whatever happens, 2013 is setting up to be an historic year for the yellow metal. Continued Fed easing could push gold to new all-time highs, but the possibility of a stronger U.S. recovery in the second half of the year could put an end to what has been one of the most lucrative trades of the past 10 years,” the magazine concluded.

“Investors will have to keep a close eye on fundamentals.”

Editor's Note: Get David Skarica's Gold Stock Adviser — Click Here Now!

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