What's Next for Gold After New All-Time Highs?
With the ongoing problems in Europe, fear has once again resurfaced in this market and gold has returned as the safe haven of choice.
At the end of 2010, we polished our thesis for the gold trade going forward, and so far going forward it has played out largely according to plan.
We have seen inflation take hold in China and there are signs it could soon accelerate at home. Problems have continued in Europe with Greece avoiding disaster with a last-minute austerity package. Now Italy looks like the next of the PIIGS nations to need a massive rescue package. Spain is the other country to run into serious problems of late. You just have to wonder how deep the EU and IMF can reach into their pockets when bigger dominoes start falling.
With the ongoing problems in Europe, fear has once again resurfaced in this market and gold has returned as the safe haven of choice. The economic recovery in the US continues to move at a snail's pace, especially in regards to jobs and the housing market. The slow growth has now prompted Fed Chairman Ben Bernanke to at least start hinting at another possible round of quantitative easing, which would be highly inflationary. The markets and gold have surged over the past two days based on Big Ben's testimony, and it's not out of the question to see the kind of Fed front-running that we saw in the second half of 2010.
The issue that has yet to really rear its ugly head and grab the headlines are the state budget crises. Given the nature of our political system, deep benefit cuts and unpopular austerity measures will be difficult to push through amid the jostling to control Congress and the White House. Many tough choices will need to be made.
When silver made a harsh correction earlier this year following a parabolic run, gold actually held in very well and is now making new all-time highs. As stated last December, I expect the GLD to easily see $160 relatively soon as the factors align to drive it higher. We could see spot gold hitting $2,000 over the course of the next year.
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