Top 10 Reasons Gold Is Going Higher in 2011

November 15, 2010

Gold prices set last week a new high of $1,424, over 35% higher than its low earlier this year. This bullish trend ending with heavy selling on Friday, has lead many investors to assume that gold has reached its peak. However, the bull market is far from over and prices will go even higher into 2011 for all of the following reasons:

10. Major Global Investment Banks Also Expect Higher Prices. German and French financial giants Commerzbank and Societe Generale recently boosted their 2011 gold forecasts. In the U.S. the outlook is even more positive as JP Morgan recently said it expects gold prices to remain above $1400 throughout 2011 and Goldman Sachs expects gold to soar as high as $1650.

9. Billionaires Still Bullish on Gold. As we reported earlier this year, a majority of billionaires surveyed by Forbes had favorable opinions on gold prices. There's one billionaire, Thomas Kaplan, who committed a majority of his hedge fund's assets solely to gold investments. John Paulson, recently stated that he has 80% of his assets in gold. However, the world's richest man, Carlos Slim, is literally digging for gold with his company's subsidiary, Grupo Frisco, which plans to open a handful of mines this year.

8. India's Gold Imports Increased Despite High Prices. Indian gold jewelry demand this Fall has remained robust even though analysts expected high prices would deter buyers. Gold's recent thrust above $1400 coincided with the peak of India's Diwali religious festival which has historically spurred jewelry purchases. Even amidst record prices, India imported over 43 tonnes of gold in October, up 19% from 2009.

7. China Further Deregulates Gold. In August, China's central bank said it would allow banks to import and export more gold, thereby increasing the country's gold market.

6. Silver Prices Remain Low. Although gold prices are at record (nominal) highs, silver is still 45% lower than its record high in 1980. Moreover, silver prices are still at an artificially high ratio-to-gold of 53:1. If we were anywhere near a peak, this ratio would be at least 15:1 (but we think it should fundamentally be closer to 1:1).

5. Gold-to-Dow Ratio Also Remains Low. As US Gold CEO, Rob McEwen often points out, whenever gold prices are at a long term cyclical peak, their ratio to the total value of the DJIA is really close to 1:1. Presently, it's at 8:1, suggesting that either gold prices must rise or the Dow must fall considerably or both.

4. World Bank Head Calls for Gold Standard. World Bank President Robert Zoellick emphasized last week the need for "employing gold as an international reference point of market expectations about inflation, deflation and future currency values" and further suggested, "Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today."

3. Central Banks Will Finally Be Net Gold Buyers in 2011. After nearly two decades of having the market flooded with gold primarily by European central bank sales, the tables have turned. Now virtually every central bank is adding gold to its reserves. One recent purcase was made by perhaps the most unlikely central bank of one of the poorest counties on earth--Bangladesh, which in September bought 10 tonnes of gold from the IMF.

2. EU Debt and Economic Concerns. The widening of credit default swap spreads, especially for Greece and Ireland, has increased over the past week, as gold prices rose, yet again, to historic highs. As we mentioned previously, gold demand in Europe has consistently surged this year on growing "EU periphery" economic and debt concerns.

1. Another Bernanke Special. A second bout of inflation ("quantitative easing part 2" or "QE2") began Friday with $6 B to $8 B in Treasury securities purchases. Bernanke announced on November 3 that the Federal Reserve would create as much as $600 B for such purchases by the first half of 2011, adding lots of US Dollars to our monetary system.

This article was originally published by Investinations on www.argmaur.com.