hi everyone...just nak share with everyone an article that i read today....
The outlook for gold is bullish for 2012. The European debt crisis, which dominated 2011, will continue to hang over markets in 2012. I’m extremely bearish on Europe. The political and financial systems are inadequate to deal with the serious fiscal and sovereign-debt problems the old continent faces.
Europe and goldThe risk of contagion is large and the safety mechanism is convoluted (too many countries with too many conflicting interests). Europeans don’t have a handle on the situation; some banks and countries are already insolvent. The situation is extremely precarious.
Europeans will keep kicking the can down the road until it can’t be kicked any longer. When that happens, it’s going to get very ugly very quickly.
In this environment, gold should retain its safe-haven status. Investors will seek to protect their assets by using gold, one of the only currencies that’s a store of value that central banks can’t print at will. The volatility caused by the European markets will push gold prices as high as $2,500 in 2012.
Five reasons why 2012 will be golden for investors:
Gold is an institutionally underowned asset. While investment demand for gold has been increasing year-over-year, the yellow metal is still drastically underowned by many institutional investors. In fact, gold represents only 1.5 percent of all total global assets including equities, fixed income, private equity and real estate.
Increased market volatility boosts gold’s safe-haven status. Following the global turmoil that has been with us since September 2008, volatility has become a permanent staple in the markets. As measured by the VIX index, volatility is at historic highs. This increased volatility is pushing investors toward the safety of gold, which will continue in 2012 and for years to come.
Central banks starting to load up on gold. One of the biggest shifts we’ve seen in the Gold markets is central bank purchases of gold. Up until 2010, global central banks were net sellers of gold assets. Beginning in 2011, many of the world’s leading central banks began aggressive and active purchasing programs to buy gold. Gold purchases in 2011 are up more than 160 percent from the previous year. Indeed, the central banks of Kazakhstan, Mexico, Russia and South Korea all went to the open market to buy gold to diversify away from their dollar holdings.
Emerging market jewelry demand remains very strong. More than 50 percent of gold goes toward the manufacturing of high-end jewelry, and the majority of these purchases are made in emerging markets; particularly in India, China and the Middle East. While these economies could slow down as a result of a European crisis, the amount of wealth creation over the last decade has been staggering, and the high-end consumers who purchase gold should continue their purchases into 2012 and beyond.
Supply extremely tight, accompanied by rising production costs. In addition to all the bullish demand factors, the actual physical supply of gold is draconically tight. Yes, high prices incentivize miners to produce more, but that’s not enough: Ore-grade levels are at historic lows; it takes several years (5-7 years) for a new mine to start producing at commercial levels; and extraction costs are increasing dramatically (labor, energy and environmental costs are all higher). All this means that there’s only 1.5 percent of new gold coming online each year.
When you add up the tight supply scenario with all the bullish demand factors, gold prices have only one place to go, and that is higher.