SAN FRANCISCO (MW)— Newly wealthy Chinese families and well-heeled U.S. fund managers conspired to push gold to records this year and their investment rationale -- rooted in fears of currency debasement and higher inflation -- is likely to keep the gold rush going in 2011.
But some of the global buyers that lifted gold futures (GCF11 1,384, -1.60, -0.12%) past $1,400 an ounce could head for the exits if rising rates make bond yields more attractive. That’s one of the pitfalls facing gold next year.
“All the factors that have driven gold higher -- the uncertainties, commodities as an asset class, gold as the ultimate currency -- I don’t see that changing significantly” said Bill O’Neill, a principal at Logic Advisors in New Jersey.
The second half of the year is harder to predict, with one potential setback coming in the form of surging interest rates in Europe and the U.S., he said. Much higher interest rates would push investors away from gold, which bears no interest, pays no dividends and thus carries an opportunity cost.
The market could absorb higher interest rates over time, “but no surging interest rates,” he added. O’Neill sees gold hovering around $1,500 an ounce next year.
Gold has gained 26% this year, putting it on track for its third double-digit gain of the last four years. To chart gold’s price movements since 2000 is to draw an imaginary mountain slope offering few toeholds in its steep ascent.
Global appetite
This year, fears of a sovereign credit crunch in Europe; lack of confidence in the dollar, the euro and other major currencies; and low real interest rates pushed Western investors towards gold in droves.
