Each time I weigh up the pros and cons of investing in gold, I am convinced that there is enough fuel in the tank to propel the safe-haven asset back towards the record peaks of $1,920 per ounce hit during the autumn of 2011.
And I believe that the very same issues that powered the metal to these lofty heights are poised to push gold much higher in the months ahead. And if you want to latch onto a potentially explosive rise in the gold price, SPDR Gold Trust (NYSEMKT: GLD.US) and Gold Bullion Securities (LSE: GBS) are excellent exchange-traded funds (ETFs) ready to track an upward movement in the metal price.
Persistent economic problems halt price slide
Gold has lost almost 22% since the turn of the year to current levels just off $1,300 per ounce, but this does not tell the full story of the metal’s performance during 2013. After hitting three-year lows around $1,190 in late June, gold has stabilised as investors have once again become jittery over the state of the global economy.
The familiar tale of economic trouble in Europe has again grabbed the market’s attention recently. Eurozone unemployment remains just off all-time highs at 12%, with new unemployment claims in the continental engine room of Germany rising for the third consecutive month in September and hitting their highest since the spring of 2009. Slovenia’s central bank also said this week that the country’s faltering banking system may need to be bailed out by the European Stability Mechanism.
But the fresh political stalemate in Washington over increasing the debt ceiling has really grabbed the headlines in recent weeks, and prompted renewed trading interest in safe-haven gold. The possibility of a US default would have catastrophic implications for the world economy and, at the time of writing, only a temporary increase is on the table for Republican and Democratic lawmakers to raise the limit before the 17 October deadline. The prospect of more political turbulence on Capitol Hill should provide fresh support for gold to rise.
Gold to spike above $1,700/oz by 2017
And over the longer term, Standard Bank expects gold to trade steadily higher over the next five years. Despite the adverse effect of rising US bond yields, and anticipation of lower physical uptake in the final months of 2013, gold’s fundamental buying case remains compelling enough to encourage a strong price rally in coming years, the broker says.
“We expect ETF liquidation to stop, which combined with cost pressures on mines, should see gold turning steadily higher,’ the broker noted. ‘This will be assisted by stronger fabrication demand.”
The yellow metal is on course to trade within familiar ranges during the final three months of 2013, the broker says, and average $1,330 per ounce during the period. But gold is expected to march steadily higher from the turn of 2014, and average $1,400 in January-March before marching on to $1,410 and $1,450 in quarters two and three respectively.
And Standard Bank expects this strong price recovery to carry through all the way to 2017. Although a projected average price of $1,429 per ounce for 2013 is down more than 14% from $1,669 last year, this is expected to steady in 2014 with an average of $1,440 touted for the full year. The broker then anticipates prices to stomp to an average of $1,525 in 2015 before rising to $1,620 the following year. An average of $1,720 has been pencilled in for 2017.
