Gold’s outlook for 2011

Gold's outlook

Gold’s outlook for next year

So what do we see for gold performance in 2011?

Already in the first month we’ve experienced a strong price correction downwards which has concerned some that we may be near the end of the current bull run. Firstly it’s important to put the recent price fall into perspective. Gold by its nature can be volatile and the price drop seen between the December price and now is around 6%. This represents less than 1-standard deviation move for a given month, for which the average volatility has been 4.9% over the previous 10 year period. As we say with all prospective investors, it’s important to view gold in the medium and long term rather than in the short term. All the market fundamentals are still very much in place for gold to continue its upward motion over the next year. The fact that we’ve had a huge influx of buyers in January, usually a very quiet month after Christmas spending, suggests that most see this as a buying opportunity.

If anything, the UK economy now feels worse than it did a year ago because we’re starting to feel the pinch from the tax hikes and spending cuts implemented in an attempt to take control of the spiralling national debt. The enormity of this task was made apparent just over a week ago when the official figures for national debt surpassed £1trillion for the first time ever and continues to increase at £7,000/second despite the new austerity measures. At the end of last year the Bank of England’s Mervyn King slashed UK growth forecasts from 3.5% down to 2.5% for 2011, and said inflation would remain high until 2012. In fact, on the 19th January figures revealed that December inflation soared. All help to improve gold’s outlook for next year.

PHYS01_Animated_Gif_1_Leaderboard

to 3.7% from 3.3%, way above expectations and worryingly above that of Zimbabwe. Meanwhile the more recognised measure of Inflation RPI stood at 4.8% and real inflation at 6.46%, as the official inflation indices have been systematically doctored to under report real inflation by successive governments.

On the same day unemployment figures revealed youth unemployment jumped to the highest since records began. Meanwhile total unemployment increased 49,000 to 2.5m, suggesting the private sector is failing to create enough jobs to compensate for public sector casualties.

Finally, towards the end of the month Q4 2010 GDP figures revealed the UK economy has reverted back to contraction. If the first quarter of this year continues in that vein then we’ll be officially back in recession and our ‘double dip’ fears will be realised.

Existing debt problems linger

On the bigger stage none of the European Sovereign debt problems of last year have gone away. Anecdotal evidence suggests that we’re likely to see a re-emergence of bailout requirements from the usual suspects of Spain, Portugal and Ireland.

The year has also started off where last year finished with terror threats and political unrest. There have been terror strikes in Moscow causing many deaths and the threat to the UK and other European countries remains high. Global political instability has worsened with the revolts in Egypt, Tunisia and Jordan.

Clearly then, the very fundamentals that have driven gold to such huge returns over the past decade are still very much in existence. Importantly, these economic and political problems are unlikely to go away any time soon – great for gold’s outlook.

So you should see the current price correction as a buying opportunity and view gold as a valuable store of wealth and portfolio insurance in what are very challenging times.

Happy investing for 2011!

Daniel Fisher

Daniel Fisher formed physical Gold in 2008, after working in the financial industry for 20 years. He spent much of that time working within the new issue fixed income business at a top tier US bank. In this role, he traded a large book of fixed income securities, raised capital for some of the largest government, financial, and corporate institutions in the world and advised the leading global institutional investors. Daniel is CeFA registered and is a member of the Institute of Financial Planning.

Leave a Reply

Your email address will not be published. Required fields are marked *