Gold’s bull-run set to continue

The announcement last week by United States Federal Reserve (Fed) head Ben Bernanke that interest rates will not rise until late 2014 and signaling that the Fed will be seeking inflation in the quest for economic growth, has put paid to predictions that the 11-year bull run by gold is about to end. Some observers now predict that the gold prices will jump between $600 and $800 an ounce this year.

The precious metals complex enjoyed a golden week last week with robust price gains after the Fed pushed back its guidance for the timing of the first hike in federal funds rate target to at least late 2014 – extending previous undertakins by about 18 months. Previously, the members of the US-monetary policy committee had said they would keep rates low until at least mid-2013..

A weaker dollar and a favourable macro backdrop boosted gold prices through important technical resistance levels to $1 730 – the first time that the settlement price topped $1,700 an ounce since early December.

The announcement prompted investors to buy gold as a hedge against inflation, which  they fear could be a result of the Fed’s extended low-interest rate policy.

With sentiment improving, it is most likely that more funds will flow into gold and silver. However, one can expect profit taking on the way up.

The initial rally, triggered by the Fed’s announcement, was further extended on Friday when the gold prices again rose nearly 1%, posting the biggest three-day rally since late October 2011, after a report showing disappointing US economic growth boosted the metal's safe-haven appeal.

Also helping gold was a sharply weaker dollar versus the euro and stronger Brent crude oil prices.
The debt crisis was a major driver of higher gold prices last year as investors bought the metal as insurance against a worsening outlook for the eurozone. However, its rally stalled in late 2011 as the metal appeared to lose its appeal as a safe haven.
UBS analysts said the market attitude toward gold has largely been cautiously optimistic after the metal fell 10 per cent and briefly entered a bear market in the fourth quarter.

The Fed’s announcement on Wednesday changed all that and the metal also received a boost from reports that the world's biggest hedge fund, Bridgewater Associates, was bullish on the precious metal as a hedge against inflation as governments print more money to reduce debt.
According to technical analysis, the near-term view for gold is bullish. Gains may extend towards 1,765 initially and then, according to technical analysis, the near-term view for gold is bullish. Gains may extend towards 1,765 initially and then to $1 800.

However Morgan Stanley predicts $2,200 an ounce during this year, while Citigroup likes gold even more, forecasting a $2,400 price per ounce.