Gold to break $2000 barrier by the end of 2012

Aug. 29, 2012 - PRLog -- Gold prices GLD, IAU are set to rise toward the end of August and through the remainder of the year. Prices will rise toward levels seen earlier this year and could very well rise above those levels over the remainder of this year. Gold prices typically strengthen on a seasonal basis starting in September. Europe's economic woes remain at the center of the present weakening in global economic growth. Central banks of all major economies have pledged to do whatever they can in their capacity to stop economic conditions from deteriorating further.
Investors purchase gold as a hedge against the loss in value of currencies that sometimes occurs due to an increase in monetary accommodation. Collective monetary accommodation by central banks surely will be inflationary and thus impact on the price of gold.
The gold market is most influenced by policy decisions made by the U.S. Fed. The Fed's next policy meeting will be held on the 12-13 September. There is considerable speculation among market participants regarding an announcement of further monetary easing in the form of bond purchases or QE3 at this meeting. The Fed has strongly hinted at such a move due to clear signs of weakness in the U.S. economy.
Given that U.S. inflation is tame at present, with a greater risk of deflation than high inflation, the greatest influence on a decision to provide further monetary accommodation would be from the job market. If the economy is seen adding jobs at the same slow rate rate during August the Fed is likely to announce further monetary easing at its September meeting, which will push the price of gold higher. If the central bank does announce another round of bond buying or if there is a stronger conviction among the committee for such action going forward, gold prices could rise even more.
Net purchases by central banks also should help to provide support to gold prices. During the first six months of the year, central banks have purchased on a net basis 5.16 million ounces of gold. Additionally, it is known that the central bank of South Korea purchased 514,412 ounces of gold in July. This has not been included in the net figure stated above, which is based on data collected in the International Financial Statistics (IFS) from central banks. Fabrication demand also strengthens on a seasonal basis post-August, which should provide further support to gold prices.
Given all of these factors Gold prices could easily break the $2000 per ounce barrier during the last few months of the year as the U.S. election approaches and a decision has to be made with regard to the country's fiscal policies by the end of the year. These are anticipated to agitate investors, stimulate gold buying and seem likely to cause a strong wave of gold buying to push prices sharply higher. A spike to levels seen earlier this year seems likely.
Spencer Kelly head of trading at SGI Traders