Gold Prices up 6.3% in a Quiet Market

Keith Fitz-Gerald | Money Map Reporter | January 18, 2012

U.S. gold futures put in a new five-week high of $1667.41 before backing off slightly to $1659.00 as I write this. So far, gold prices are up 6.3% for the year.

Some – like the metals consultancy GFMS – think gold is nearing the end of its decade long 600%+ run. I think that’s wishful thinking.

Consider: Many of the Wall Street firms that shunned gold are now back in the hunt, and several are now calling for prices at or above $2000 an ounce – including Goldman Sachs ($1940 an ounce), Morgan Stanley ($2200 an ounce), and Citi ($2400 an ounce).

Chinese gold imports are up 483% year over year as of November 2011. Volumes are increasing dramatically in recent months, up from an average of 10 tons a month to 57 tons, 85 tons, and 102.2 tons in September, October, and November, respectively. The Chinese are among the biggest gold buyers in the world, and with $3.18 trillion in reserves, they have every reason to be… like individual investors, they need to hedge their risks.

An increasing number of prime brokers now accept gold as collateral. This is important because these same firms used to consider U.S. Treasuries as the “best” means of posting assets to back up trading.

With trillions in exposure potentially at risk in the event of one of more European defaults, gold could literally be the last resort when it comes to backing up trades. Not that it will be, but it could… this, too, is a very powerful reason to expect higher prices ahead.

Key Takeaway: Gold remains a viable investment, not only as a hedge for bond income and principal value, but as a source of outright gains. Moreover, the factors underlying the inevitable march to higher prices have been in place for years and are only getting stronger.

One word of caution: With very few exceptions, bullion is likely to outperform mining companies themselves because of the political uncertainty and inflationary pressures those companies face. Just because gold miners are mining gold doesn’t mean they’re immune to regular business issues, like the rising cost of energy and labor needed to get it out of the ground.

Get a sneak preview of Austin Rare Coins & Bullion’s 2012 Gold Profit Report. Download this free guide now to learn how to invest in precious metals and the safest, private Gold to own in today’s inflationary economy.

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