Even though dollar gold prices are relatively strong, ScotiaMocatta, the gold bullion banking division of Scotiabank, observes that gold in a host of currencies has reached record highs this year.
“What is interesting is that this represents a mixture of developed and emerging economies, which highlights the broad-based appeal of gold as an alternative currency.’
Meanwhile, “having consolidated between September 2011 and September 2012, we feel gold prices have started another up leg that is likely lead to new highs during 2012,” ScotiaMocatta said.
In their November 2012 Precious Metals Forecast, ScotiaMocatta declared “we would not be surprised to see prices reach $2,200/oz. Should prices undergo another correction in the short term then we would look for good support around $1,600/oz.”
“Eventually, once the bull market has run its course and there is less need for safe-havens, then we would look for prices to retrace back towards $1,100/$1,200/oz as investment gold is liquidated and supply surges, but we certainly do not expect that to happen in the year ahead.”
In their analysis, ScotiaMocatta acknowledged, “There remain a multitude of factors influencing the gold price, but one of the main reasons we are still bullish is because of the mess the Western world is in.”
“Europe has a debt problem that is proving all but impossible to solve and all efforts to date have revolved around throwing more money at the problem to avoid the monetary system from breaking down,” ScotiaMocatta observed. “That should be reason enough to be bullish for gold and we think the latest move higher in gold prices shows that it is.”
“It is hard to have much confidence in the economic outlook and in governments’ ability to get a grip with all the interlinked problems.”
“As faith in policymakers wanes with their handling of the crises, we expect investors will not want all their wealth backed by paper assets and therefore will look to spread their risk by holding gold and other hard assets,” ScotiaMocatta noted. “Greater monetarisation of gold is likely to be bullish for prices.”
“Overall, we do not think we have seen the peak in gold yet as we think the world’s financial problems are far from over. However, the higher the gold price goes the more volatile trading is likely to become and the more nervous investors and funds are likely to be,” ScotiaMocatta cautioned.