Why the Price of Gold is Headed to $2000 an Ounce - Money Morning

The Price of Gold, Seasonal Demand and Central Banks

"In contrast to the common belief that September is the strongest month for gold bullion, it is actually November that shapes up better, with December being the third best month for gold price responses over the past 10 years," the firm says.

Vigorous jewelry demand prior to Christmas helps drive demand that boosts gold and silver prices.

Also helping are central banks.

Citing the U.S. Federal Reserve's third and "infinite" quantitative easing program, which consists of $40 billion per month purchases of mortgage related securities until it sees significant and sustainable improvement in the U.S. economy, the CIBC analysts see much more upside for gold.

"QE1 and QE2 were the drivers for gold price increases in the order of $20 to $30 per month. We expect that QE3 will offer something between these figures, although on a percentage basis the moves will not be as significant due to the higher gold price," the analysts penned in a research note.

As global economies deal with mushrooming fiscal difficulties, sky's-the-limit deficits and slowing growth, gold and silver are poised to benefit.

CIBC maintains its 2013 forecasts of $2,000 an ounce gold and $35 an ounce silver, but further out things look much brighter.

For 2014, CIBS's projections are for gold rising to an average $2,200 an ounce and silver shimmering to $38.

Note for investors: To find out the best ways to get in on the soaring gold price, click here.

"The figures represent our view that prices are underpinned by the rising cost of supply, plus strong demand coming from both investor interest and Central Bank buying," the firm added.

Global central banks have been steady and robust buyers of gold over the last several months, adding to their stores as a means to shore up assets following liberal money policies that have lowered currencies' values.

In addition to the loose money policy of the U.S. Federal Reserve, similar stimulus measures have been implemented by the European Central Bank and Bank of Japan. Furthermore, the slowdown and contraction in China hints a similar move from the Asian nation is forthcoming.

The torrent of dollars flooding these economically sensitive worldwide economies, coupled with record low interest rates, has raised the global inflation red flag, making safe haven gold and silver more attractive. The more money the Fed prints, the more valuable gold and silver (priced in U.S. dollars) becomes.

A Shift from Falling Currencies

The World Gold Council reported gold priced in U.S. dollars jumped 11.1% per ounce in the third quarter of 2012.

The third-quarter gold rally began in late August, as anticipation of a third round of quantitative easing from the U.S. Fed grew more certain. The rally peaked in the days following the FOMC's announcement of QE3.

While the WGC acknowledges that gold and other assets (silver) are cushioned by central banks' unconventional fiscal policies and the mounting fears of inflation, the Council stresses the yellow metal's movements are affected by more than simply central bank actions.

Supporting gold, the Council says, are concerns of currency debasement, a hedge against sharp financial market pullbacks and interest by savers and investors to shift to tangible assets. Those are the same reasons many have taken a keen shine to less expensive and greater upside silver.

Both are being accumulated because they are safer alternatives to paper money.

"It is critical to note that while gold prices react to monetary policy developments, they are more generally determined by a geographically and thematically broad set of factors," the WGC said.

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Source: http://moneymorning.com/2012/10/22/why-the-price-of-gold-is-headed-to-2000-an-ounce/

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