- Written by John Miller
As 2010 draws to a close and the mining world ponders what 2011 has in store, gold seems certain to retain its glow, at least in the short to medium term.
Since the start of 2008, just before the GFC, gold has stood tall above most other major asset classes, appreciating by 67% while equity markets, are still in negative territory. Copper has challenged, being up 35% but another precious metal, silver, has won the race and is up by 96%.
At the end of 2010 gold continues to set new records and recently set a new high of US$1423.75 an ounce. Overall, the gold price is up 11% in the last three months, and in the last 12 months it is up by 24%. Silver has soared 64% in the same period.
In its quarterly research report covering 17 small and mid-size gold exploration and development companies, Resource Capital Research (RCR) predicts that gold will continue upwards momentum into the first half of 2011.
RCR's senior gold analyst Dr Tony Parry says, “It’s not easy predicting the gold price when it is regularly breaching all time highs, driven by crisis-related fear.
“But it’s win-win for gold at the moment. Either the US dollar is weakening, driving gold up, or when the US dollar is stronger it’s usually because of a weak euro due to sovereign debt fears, which itself increases safe haven demand for gold.
“With those dynamics, we expect further record-breaking gains into the first half of 2011. However, if, and when, equity markets enter the next bull phase, (and that’s a big if), the need for a safe haven will dissipate and gold will come off. Predicting when that will happen is the hard bit.”
RCR's report says predicting the gold price is no longer about analysing gold’s fundamentals, but more about analysing market psychology, the almost total lack of trust in most asset classes, and the predominance of a ‘crisis mentality’. At the moment it seems that gold and other precious metals are virtually the only investment vehicles that can be trusted.
If other asset classes start to regain the market’s trust, the need for a safe haven is reduced. In this scenario gold’s fundamentals look precarious. That will happen in time, and RCR believes gold will eventually come off and re-test US$1000/ounce.
However, it is hard to bet on this happening in the short-medium term.