The "lost decade" continues to see much market volatility, leading economists to predict that the price of gold will remain high into 2013 and beyond, and possibly rise further.
"The Lost Decade"
The Eurozone, whose economy contracted 0.1% in 2012´s third quarter, continues to show little sign of recovery, with France now looking like it could be dragged toward the PIIGS´ mire too and Spain grappling with the possibility of Catalonian independence while also trying to kickstart their economy. What´s more Europe´s leaders failed to reach agreement yet again on how to assist Greece once more. In the United Kingdom, if the Euroskeptic Tories get their way, David Cameron may push Britain to "second-class membership" status of the EU before long, further weakening the bloc, amid difficult negotiations on the upcoming EU budget. Ben Bernanke and the Fed are content to print more money until the US economy shows signs of returning to growth. Furthermore, over the next four years under Obama US debt levels are predicted to touch the $20 trillion mark. A grim outlook indeed.
What Does This Mean for Gold?
It means that gold's price is highly likely to rally into 2013 and rise further. Barrick Gold (NYSE:ABX) has predicted a spike of $2000 in 2013. HSBC recently raised it's 2013 forecast from $1775 to $1850, stating that they "expect prices to reach $1900 an ounce by year-end." Barrick Gold, the world´s largest producer of the precious metal, has pointed to rising production costs as a principal reason for an imminent rise in value. General rise in demand will also ensure that prices remain high. China and India's bulk-buying is set to continue in addition to demand from central banks around the world for gold.
As mining companies are finding it more difficult to locate prime mining locations, production costs are rising sharply. In addition to this, mining firms may encounter unforeseen problems such as adhering to different laws, based on the country where they mine as well as potential setbacks in the production process. Recently for instance, Chile's National Geology and Mining Service suspended Barrick Gold´s mining operation at their Pascua Lama plant due to a contravention of health and safety laws. In order to counter such risks associated with investment in miners, many of the leading companies attempt to entice investors by offering a dividend. Depending on whether an investor wants to go short or long, it is advisable to analyze the current production forecasts of each miner in addition to their long-term plans to get an idea of the potential pitfalls associated with their projects. Investors should consider some of the most prominent dividend issuing miners, such as Newmont Mining (NYSE:NEM), Goldcorp (NYSE:GG) and Barrick.
ETFs such as SPDR Gold Trust (NYSEARCA:GLD) and iShares Gold Trust (NYSEARCA:IAU) could gain 11% in value if gold hits forecasted figures of over $1900 in 2013. As an alternative investment option, ETFs do not come with some of the risks associated with investing in mining companies, however there are downsides. ETF investment generally tends to be more expensive than investing in one specific stock doe to management fees as well as the regular stockbroker fee.
Uncertainty in Europe and the United States will continue to keep gold's price high in 2013, with the general consensus being that the price will spike above $1900 or even above $2000. Akin to groundhog day, in Europe the EU's leaders are aiming to thrash out another deal for Greece, as well as reach an agreement over the bloc's upcoming budget. The US will continue to devalue it's currency with more quantitative easing and another showdown looms between the White House and the Republicans over the US budget. Furthermore, China and India continue to be the globe's biggest consumers of gold and now central banks are buying rather than selling the precious metal. As a safe-haven, flight to gold is foreseeable.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.