Gold Prices Heading up for 2011?
Gold has edged higher in each of the past nine years, and it is set to close off its decade-long bull market. Buying has been driven by a combination of speculative trading in physical gold, gold ETFs, and buying as a safe-haven investment.
There are some bullish pundits who are even suggesting a $2,000 longer-term target for gold based on rising demand out of China and India.
For starters, world governments have committed trillions of dollars to various bailout packages. Those bailouts will have also left a debt trail of gigantic proportions.
In the U.S. only, about $2.0 trillion of the bailout money has been procured through auctioning government debt instruments. In turn, the budget deficit is going to be enormous and, as a result, the U.S. dollar is continuing to be weak in 2010. This could continue into 2011, as the government’s financial situation moves deeper into the red. Note that, the lower the dollar goes, the better it is for gold prices.
In addition, the Federal Reserve has pumped hundreds of millions of dollars into the U.S. financial sector in an effort to create liquidity, encourage lending, and entice consumers to start spending again. It sure is taking time, but all this money is bound to reverse the effects of deflation and result in inflation, which has always been the best thing there is for gold prices.
The February 2011 Gold on the COMEX recently broke to a record high of $1,432.50, well above both its 50-day moving average (MA) of $1,3650 and 200-day MA of $1,243. We are seeing a bullish golden cross on the chart, with the 50-day MA above the 200-day MA.
The near-term technical view is moderately bullish, but the Relative Strength has been weakening, which has resulted in the failure to hold above $1,400.
The simple truth is that gold is a trustworthy and realistic investment instrument that should be in every investor’s portfolio. Gold’s traditional role as a safe haven has made it the underdog in the world markets. It is an investment that people turn to only when stock or bond markets aren’t performing well, or when monetary policies are running amok. Yet there is a sense that gold may be increasingly seen as a credible and realistic investment vehicle and not just as a safe-haven instrument for parking capital.
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