What Are the Potential Outcomes for Gold Price in 2012?

Following my recent article on the potential outcomes for the price of silver in 2012, this article will complete the picture with a short overview of the possible outcomes for gold price. This analysis should give you a broad perspective as to the potential direction gold price might head by the end of 2012.

During the first half of 2011 gold price climbed up very slowly and by the end of June it has only risen by nearly 5%. During the second part of the year gold price experienced much more volatility as I have explained in the past. Gold finished 2011 with a 10% gain.

So what could we expect gold price to reach by the end of 2012?

I think, there are four major scenarios to consider:

  • Gold price ranging between $1,700 and $1,900 by the end of 2012 (probability of this option – high): This scenario, in my opinion, is most likely. Even though the current price of gold is in this range (as of February 21st, gold price reached $1,758), bear in mind this range reflects a yearly increase of 9%-21% compared with the level of gold from the end of 2011. Much like in 2011, many will probably continue to anticipate the depreciation of USD due to the quantitative easing plans, low interest rates, and low return on U.S investments such as treasuries and stocks. These conditions will also keep gold price rising during the year. In fact, during 2011 the US dollar appreciated against the Euro by roughly 3%, depreciated against the Yen by 5% and remained nearly flat against the Aussie dollar. If 2012 will be a similar year for the US dollar, then gold won’t benefit from it. Furthermore, since there are smaller chances of another quantitative easing plan by the Federal Reserve, and the U.S stock markets and US economy are showing some signs of recover, then gold price is likely to rise by a similar rate as in 2011. Finally, one should always consider the possibility that CME will intervene in the metals markets by raising margins on gold if the metals market will start to hear up;
  •  Gold price ranging between $1,900 and $2,000 by the end of 2012 (probability of this option – low): This scenario is possible even though is less likely. This means gold price will rise by 21-28% by the end of year. Silver has performed exceptionally well in 2010 as it rose by 84%. If the progress of U.S. economy will slowdown in terms of GDP and labor force. Furthermore, if the Fed will reintroduce another quantitative easing plan, then this scenario will become more plausible;
  • Gold price ranging between $1,500 and $1,600 by the end of 2012 (probability of this option – low): This scenario, in my opinion is less likely. The economic slowdown in China and India could adversely affect the demand for gold of these leading countries in gold import; this in turn could also adversely affect gold prices. If the U.S. economy will show unexpected growth this scenario could become more viable. The recent pledge of the Federal Reserve to keep its interest rate low until the end of 2014 and the economic perils the U.S and Europe is facing in regards to their budget deficits and debt will help keep the price of gold high during 2012;
  •  Gold price ranging between $2,100 and $2,200 by the end of 2012 (probability of this option – very low): This scenario is least likely among other scenarios; it doesn’t mean it’s impossible for gold to reach this range during the year, it’s just that in such a case the price won’t stay there for long for the reasons listed in scenario 1.  If there will be another quantitative easing plan, the U.S and Euro Zone will head towards a recession and the CME won’t intervene by raising margins of metals trading then this possibility will become more likely.

This analysis, much like the silver yearly analysis,  should be taken with a grain of salt as I have only voiced my opinion and tried to give you some perspective as to what should we expect gold price to reach during 2012.


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