Gold hits five-month high amid predictions of $1,800 by year-end

Gold surged to a five-month high, boosted by fears of government's devaluation of paper currency and a weak jobs report. Many experts are predicting that gold will hit $1,800 an ounce before the year is over due to the likelihood that the Federal Reserve will launch another round of quantitative easing.

By Ian Cowie
Last updated: September 5th, 2012
The Telegraph

Gold surged to a five-month high, boosted by renewed fears of governments’ stealthy devaluation of paper money and an influential analysis that predicts bullion will hit $1,800 an ounce this year.

With share prices continuing to slide and negative real returns on bank and building society deposits, gold’s historic attractions sparkle amid the credit crisis gloom. Philip Klapwijk, global head of metals analytics at Thomson Reuters GFMS, said the consultancy remains firmly bullish, with the price expected to clear the $1,800 mark before year-end.

However, he added it was unlikely that 2011’s highs of just over $1,900 would be surpassed and explained: “I think we’re on pretty safe ground saying that we’ve already seen the lows for the year and that firmer prices, particularly towards year-end, are on the cards but we’re also expecting a bumpy ride ahead. Any intensification of the Eurozone crisis or dashing of hopes for further easing by the Fed and you could easily see the rally derailed for a while.”

Unsurprisingly, Adrian Ash of BullionVault.com is another bull of bullion: “Gold investors look assured of another year-on-year gain in 2012, the twelfth in succession. Central bankers are to thank, or to blame, depending on whether you’ve still yet to buy.

“They under-played the threat of inflation long before the financial crisis began. What price deflation the last five years may have achieved, they’ve over-turned with zero rates and quantitative easing (QE). The fact of more QE here in Britain, plus anticipation in Europe and the US, continue to make physical gold an obvious and important refuge for savers.

“Policymakers tore up the rulebook in 2008. They’re likely to become only more desperate as the next stage of the government debt crisis unfolds.”

Mr Klapwijk added: “We’ve recently seen how gold can react sharply to any prospect of more QE in the United States and we’re fairly confident that some form of easing is more likely than not in the end. We have seen periodic items of good news on the US economy but that invariably seems followed by bad.

“This is all before a probable slowdown in both European and Chinese economic growth. Neither can ignore its domestic problem of the fiscal cliff, with all the uncertainty and recessionary potential bound up in that.”

Against all that, bears argue that bullion is a bubble. Some predicted earlier this year it would fall below $1,000 an ounce. So far, the bulls appear to be winning the argument as the gold price climbs a wall of fear – mostly about alternative stores of value, such as fiat or paper money and shares.

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