Analysts and traders are extremely bullish about gold. Rising inflation, the decline in the US dollar, and ultra-low interest rates created the perfect environment for gold to flourish. Legendary investors George Soros and Jim Rogers are bullish about gold. John Paulson, David Einhorn, and Dan Loeb are among several younger hedge fund managers who are extremely bullish about gold.
They either use physical gold, SPDR Gold Shares (NYSEARCA:GLD), Market Vectors Gold Miners ETF (NYSEARCA:GDX), or the Junior Gold Miners ETF (NYSEARCA:GDXJ) to speculate. ETFS Physical Swiss Gold Shares (NYSEARCA:SGOL), ETFS Physical Asian Gold Shares (NYSEARCA:AGOL), iShares Gold Trust (NYSEARCA:IAU) are other alternatives for gold investors. Deutsche Bank's DGL, DGP, DGZ, DZZ are used by individual investors who are mostly seeking leveraged exposure. Countries such as Saudi Arabia, China, India, and Russia are boosting their gold reserves through purchases of physical gold.
Industry insiders also think that gold prices are more likely to rise than fall. Earlier this week, Bloomberg interviewed Nick Holland, the CEO of Gold Fields Ltd (NYSE:GFI), South Africa’s second largest gold producer. He expects their production to increase by 6% in 2011. They produce about 3.6 million ounces of gold every year. When asked about the gold price expectations, this is what he said:
Well, it is always very difficult to predict gold because it has so many different factors but what I would say that is probably the most fundamental trend change that I've seen over the last six months is the jewelery demand in India. It's starting to pick up in tonnage terms and not just in $ terms and for some time Indian jewelery demand had declined. We are now seeing a turn, and if you look at that and also the additional demand we're getting out of China for jewelery, the fact that production in the industry is flat to declining. The fundamentals for gold are good. So, we certainly believe the gold has a good flow price of probably 1000$ and it could go higher. But frankly I'd be more than happy if the trade is where it is for the rest of the year.
He can‘t give numbers about the highest price of gold expected in the coming months, but predicts that it may go higher, saying
It's very difficult to predict, if you look at oil, the long term relationship with oil and gold would suggest that gold could go higher but its very difficult to say, but I think there's more upside than there is downside.
"It's quite possible it could get there. When you see this kind of trend it could keep going", he added when asked if the price of gold could get to 1500$ or higher pretty soon.
Holland is also bullish about gold prices because of inflation expectations and portfolio investments.
If you look at the monetary base of the US we're seeing pressure on the monetary base over the last year or so, and I think realistically that's going to continue into 2011 and probably even 2012 and that's going to be one of the biggest impact that we're going to have on the gold price as financial assets devalue further. There is going to be more of a hedging into gold and diversifying of portfolios to get more of a gold exposure, so again that's also going to help the gold price I believe.
Disclosure: I am long physical gold