Why Gold Could Hit $2,000 Next Year

LONDON -- Spot gold has made a rather unspectacular start to 2013. The precious metal has retreated 4.7% since the start of the year to $1,580 per ounce, as improved market sentiment has driven capital flows into riskier assets and away from safe havens.

Despite the price fall, Bank of America expects bubbly central-bank activity to push gold higher again -- the bank expects the metal to surpass $1,750 per ounce as the year progresses, before finally pushing through $2,000 to fresh new peaks in 2014.

Investors can hitch on to rising gold prices through SPDR Gold Trust  (NYSEMKT: GLD  ) andGold Bullion Securities  (LSE: GBS  ) , instruments that are designed to track movements in the metal price.

Gold set to ignite in summer heat wave
Bank of America has, in recent days, cut its gold-price forecasts for the next two years. The bank now expects the yellow metal to average $1,680 per ounce and $1,838 per ounce this year and next, down from the previous projections of $1,805 and $2,038.

Although the bank has become more cautious with its estimates, it believes that gold remains on an uptrend that should persist until 2014. The institution predicts gold to average $1,650 and $1,600 per ounce in quarters one and two before marching steadily higher from the middle of this year.

The yellow metal is expected to average $1,700 in quarter three and $1,750 in quarter four, before marching to $1,850 and $1,900 in the first and second quarters of 2014.

Central-bank buying forecast to rise
Bank of America expects central banks across the globe -- especially in developing markets -- to engage in more proactive exchange-rate management as the year progresses in response to aggressive Japanese tactics to devalue the yen.

As global growth and inflation pick up, increased U.S. dollar purchases from central banks will be needed to counter the appreciation of non-yen exchange rates, Bank of America argues. This should in turn drive up inflation, particularly in emerging regions, boosting gold interest as initial dollar purchases are eventually recycled into metal holdings.

Central banks have remained steady purchasers of gold in recent years amid fears over macroeconomic fragility and rising inflation. South Korea has bought an additional 20 tonnes of metal in recent days, taking its total holding to 104.4 tonnes. Russia and Kazakhstan bought more last month.

Official sector purchases across the globe hit 534.6 tonnes last year, according to the World Gold Council, the highest level since 1964 and up 17% from 2011.

Other factors could also drive the precious-metal price higher in the medium term, Bank of America says. It expects real rates to head lower again moving into 2014, prompting fresh gold interest. The institution anticipates rising affluence levels in emerging markets to drive gold jewelery purchases higher, too.

Mine gold stocks for gains
Investors can also gain exposure to a rising gold price through shrewd stock picks in the mining sector. Galloping demand for natural resources should continue to drive broader commodity stocks higher over the long term.

This special wealth report from The Motley Fool -- "Ten Steps to Making a Million in the Market" -- gives investors the lowdown on how to make a mint from choice stocks in the mining sector, including one major African-based gold producer. Click here now to download our totally free report.

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  • Report this Comment On March 09, 2013, at 2:18 PM, ranji57001 wrote:

    Gold price will always go up as long as we have people like the ... rothschild family and their greed, that wi might even start the 3rd. world war

    ......With their 500 trillion dollars, they could and do control the world...

  • Report this Comment On March 09, 2013, at 6:05 PM, duuude1 wrote:

    Seriously? I thought you were Fools - not fools!


    Over the long term, stocks have outperformed every other asset class out there, real estate, precious metals, bonds, treasuries, and Stocks make very real returns far in excess of inflation whether inflation is high or low - over the long term. Over the short term, everything is a crap shoot, and even an inert chunk of metal like gold can bubble up (like internet stocks a decade ago and real estate did recently - now gold's turn). Do yourselves a favor - invest in diversified stock index funds, never sell, always add regularly whether market is up and especially when it is down. Run a spreadsheet with that model for your own income over the past 5 years, 10 years, 20 years, etc and you will seriously kick yourself if this is not what you're doing.

    Gold looks nice on a finger...not in a portfolio.

  • Report this Comment On March 09, 2013, at 9:48 PM, tiramisu13 wrote:

    BOFA analyst prediction from 6 months ago stated that gold would reach $2000 by March 2013. We all know what actually happened. He was wrong.

    Watch GLD holding carefully. Every day there are 5-9 tons of gold less in the ETF. Someone is selling.

    Indian families are reluctant to step in - they are quite a shrewd price negotiators and now families are waiting for the price to go lower before they would start buying again. The China imports fell for the first time in 4 months.

    If sell-off of paper gold (GLD) accelerated and became an avalanche central banks, Indian buyers and asian buyers (even if they started buying again) would not be able to help to maintain the price. Gold backed ETFs holdings exceed four times all the yearly central banks purchases , India and China yearly imports.

    Thanks to the gold backed ETFs we now have bubble in paper gold that is starting to let air out.

  • Report this Comment On March 09, 2013, at 11:14 PM, mitstrebor wrote:

    Oh yes the banking industry is going to buy all the precious metals they can get their hand on before it all goes to nothing in value! Gold and Silver will be illegal to own once again!

  • Report this Comment On March 09, 2013, at 11:18 PM, mitstrebor wrote:

    I got my Illegal IVORY up for sale now!

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