Gold prices have been trending up in the last month due to renewed hopes for QE3. In the past few days, the prices have also benefited by the rise of the Euro against the US Dollar.
While the gold is now up about 3.6% year-to-date (vs. 10.2% for S&P 500), it is still down about 17% from its peak in September last year. (Read: The Comprehensive Guide to Gold ETF Investing)
Near-term direction for the gold will be guided by the outcome of the FOMC. If the Fed announces a new round of monetary easing, the Dollar will trend lower while the gold may continue its uptrend.
Gold has suffered due to slowdown in China and India, which together account for more than 40% of the global demand. Additionally, the demand in India has also been affected due to the jump in gold price resulting from the decline of the Indian rupee against the US Dollar. In India the prices are near all-time high in the Rupee terms. Not to mention some of the bizarre theories about the gold price manipulation by the central banks, which have gained momentum of late, in the wake of Libor manipulation scandal.
I believe in the long-term investment case for gold, due to its diversification benefits and ability to act as a hedge against inflation. Further though the metal does not provide any income yield, the opportunity costs of holding it are now very low now due to record-low interest rate environment. The central banks, especially in the emerging countries have continued to add to their gold holdings, in order to diversify their reserves, which will also provide support to the price.
However the short-term trend may not be very favorable due to continued strength in the US Dollar, concerns over deflation and reduced demand from China and India.
Zacks consensus forecasts for gold calls for 1.15% appreciation by the end of June 2012, somewhat similar to 1.92% appreciation for silver. Popular gold ETFs (GLD - ETF report) and (IAU - ETF report) have Zacks ETF Rank 3 (Hold) currently. Please visit Zacks ETF Center to read research reports on these ETFs.
On the other hand, other precious metals platinum and palladium are expected to rise of 6.72% and 11.16%, respectively over the same period. Please see Will Palladium ETF Shine Brightest This Year? And Time to Invest in Platinum ETFs?
Do you think that the gold will regain its luster if the Fed and other central banks announce additional easing measures or the 12 year bull run of gold is over now? .