Thursday, April 26, 2012

Gold Price Forecast for 2011

2011 Gold Price Trend Forecast

Forecast: Rally to continue, but in a slower rate than 2010

1.) A Quick Summary of 2010 Gold Price Trend

1a.) Technical Summary:
2010 saw a continued rally in gold price. Gold price was up from USD1044.4 (1 Feb 2010) to USD1431.33 (6 Dec 2010), a 37% increase in 12 months. Gold price stayed within the uptrend channel that started in 2001 when gold price's lowest price was USD253.5. Gold price has risen close USD1200 over the last 10 years, an increase of 565%. Gold price has doubled in 2 years, from USD682 (Oct 2008).

2010 Q1 February gold price hit its lowest price, then the rally started until Dec 2010 when gold price reached new historical high at 1431.33. Q1 and Q3 were technical corrections seasons, and Q2 and Q4 were rally seasons.

2010 Seasonal Trends for Gold Price ( total rise of 37%):
Q1: highest price was 1136, lowest price was 1044 correction season (down 8% from 1136)
Q2: new peak achieved at 1255.49 (21 June 2010) a rally season - (up 11% from 1044)
Q3: July saw a correction; price was down to 1156 correction - (down 8% from 1255.49)
August & Sept saw another rally new peak at 1320.6 (27 Sept 2010) (up 14% from 1156)
Q4: New historical peak achieved at 1431.33 (6 Dec 2010) a rally season (up 24% from 1156)

1b.) Fundamentals Support for Gold Price's rally in 2010:

Increased in investment and physical demands were supporting gold price to rise over the whole of 2010. Commodities prices rose as a result of increasing demands mainly from emerging countries, and also caused by increasing speculative demands from the markets. Other commodities such as aluminum, palladium, also surged in 2010.

Physical demands came mainly from emerging countries such as India and China increased their gold reserves as USD was trading at low levels. Indians and Chinese were also purchasing higher volumes of gold as an investment asset. China further opening up its Shanghai gold exchange in Q3 of 2010 further pushed up the gold price. While India's national spending on gold purchases increased by over 90% in 2010 alone. Another big increase in gold buying came from Russia as physical demand was also up and national reserves in gold holdings also went up as a hedge against the falling US dollar. We also saw some other nations taking the same actions as USD was on a slide.

Increase in the world's largest ETF fund; SPDR ETF's gold holdings were up to over 1300 tones from around 1100 tones at the start of 2010. International governments were also increasing their gold holdings as foreign reserves, hedging against the falling USD.
SPDR EFT Gold Trust up 28% in 2010: (see below chart)

Investment demand for gold was also strong as investors turned to gold as an alternative investment against Euro and US dollars. Risk appetite for gold went up and pushed gold price to new peaks as Euro debts caused serious concerns to the markets. As Euro zone debts problems worsened ; Spain, Ireland, Portugal, Greece went into severe troubles with their national debts, and saw their ratings downgraded. EU had to implement undesirable policies to rescue those countries. Euro against USD fell sharply from 1.500 (start of 2010) to 1.180 (June 2010), and recovered slightly to around 1.300 levels as debts problems were easing. The safe haven' factor as investors turned to gold during the Euro debts crisis, was a major leading factor behind gold price's strong rally during the 2nd half of 2010.

The other key factor was the weak US economy. US Fed's Quantitative Easing QE2 rescue policy in Q4 of 2010 gave gold price a final push above 1350, and hitting 1430 (historical peak). The easing of US monetary policy to boost the weak US economy, lead to another surge in investment demand for gold.

USD Index 1 year chart, as USD index was trading weak against other major currencies, markets once again turned to gold. High US unemployment rate at around 9.3%, slow retail sales and housing markets still in a slump, US interest rates stayed at low levels during 2010, and gold continued to rise as alternative investment demands increased. Gold price saw a straight daily jump of USD20 each time when there was weak US economic data came out.

2.) 2011 Gold Price Trend Forecast

Do we think the rally will continue in 2011? The answer is Yes. We expect gold price will rise further, but at a slower rate than in 2010. We forecast gold price would increase by 15-25%, the price of gold could rise into the 1680 1900 area.

Do we think gold price is in a bubble? No, not at current price levels. And gold price was not always on a straight up since 2008. in 2009, and 2010, each time gold price achieved new peaks, there were healthy corrections of 5% - 10%. The price would be seen as a bubble if there was no corrections in the gold price uptrend.

2a.) Technical Forecast For 2011 Gold Price Trend:

Looking back at our 2010 gold price forecast, we predicted that gold price would see rallies in Q2 and Q4, and Q1 and Q3 would see corrections. As it turned out, we were correct in the predictions of quarterly pattern.

2a.) 2011 Quarterly Technical Trend for Gold Price:

Q1: Technical corrections season around 8 10% from peak price of 1431
Q2: Rally season
Q3: Correction followed by rally
Q4: Rally then corrections begin

A new historical peak could be reached in the area of 1680 1900.

Looking at the 10 year up trend chart.
Gold price has been on a rising trend since 2001, when price of gold was at around USD250, and the uptrend became steeper started in 2007. As long as gold price remains on the uptrend, gold price should continue to rise in 2011.

Looking at the Gold Price Weekly Chart.
Gold price went up from USD 1044 (Feb 2010) to 1431.33 (Dec 2010).
The resistance line indicates that near term key resistance should be around 1550. While key horizontal resistance should be at 1387. That is, if gold price fell through 1387, then the uptrend of gold price could be collapsed.
As mentioned above, we forecast gold price to be rising through 2011, and could enter the 1680 1900 area.

Looking at the Gold Price Quarterly Chart.
Gold price should enter a corrections season in Q1 of 2011, could see a 8% - 10% correction. Gold price could go though another step-by-step rising trend, where Q1 and Q3 could see technical corrections, and Q2 and Q4 would see gold price on a rally.

2b). Fundamentals affecting Gold Price Trend in 2011

Gold price's physical demands would continue to be on an increase as countries such as India and China's economies continue to grow. Domestic demands for gold would see increases. We expect China could further expand its gold exchange business as the investment demand from local Chinese has also been on a rise. And there's also Russia as a key buyer of gold to increase its gold holdings as foreign reserves. However, as China could further increase its interest rates to calm inflation and control growing housing prices, the 2011 GDP growth in China could see a slow down. Thus could cause a slower increase in physical demand for gold, in comparison with 2010.

While European debts problems would keep coming back into the picture, as the problem is still far from being completely resolved. Each time the Euro debts problem creeps into the picture, we could expect the risk appetite for gold to rise again. However, as Euro zone has also kept its key rates at low levels, the EU central banks could begin to lift rates during 2nd half of 2011, this could cause damages to gold price.

After US implemented easing monetary policy, key economic data have shown better signs of US economic recovery. While the US trade deficit, unemployment still remain as weak areas of the overall recovery picture, US Fed's relaxed monetary policy should remain for at least during the 1st half of 2011. USD index should continue to be weak against other major currencies as US Fed intends to keep USD low for sometime to boost its exports. Gold price would remain strong as the US economic recovery process could still undergo some key obstacles. But, as positive signs of recovery could come into the picture during 2nd half of 2011, gold price could see corrections as investors would turn to US stocks for immediate investments returns.

Inflation fear, would be a key factor in 2011 for a strong gold price. Gold price could also be lifted as fear of inflation continue to rise. As emerging countries have forecast their domestic inflation to be rising as a result of higher than expected domestic growth, domestic prices could see further increase. European countries and US, if are viewed as on the road to recovery, inflation pressure could increase. This could give another support for gold price to see more upwards momentum, as a hedge against inflationary pressure.

In Summary:
We forecast gold price to continue to rise in 2011. As long as the demands are still up, gold price should continue to rise in 2011. However, the rate of increase would not be as significant as in 2010. The trend could also be more volatile as gold price had already gone up by over 30% in 2010, and has come up from USD682 (20 Oct 2008) to 1431 (6 Dec 2010) which is a 110% increase in 2 years. We expect a 15% - 25% increase in gold price this year, in step-by-step uptrend, and if technicals hold, gold price could see USD1680-USD1900 per troy ounce in 2011.

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