There are many factors that move the gold price. In 2010, one of the most popular reasons was investors buying gold as a hedge against financial disaster in Europe as European Union nations like Greece and Ireland teetered on the brink of default. The response by most governments, one of the biggest offenders being the U.S., was to print money. As paper currencies declined in value, the price of gold rose.
But 2011 has been dicey for gold, with prices getting smacked with double-digit selloffs and rallies. The common culprit has been labeled "rebalancing," where traders who bought gold at the end of the year to show they owned it dumped it in 2011 to book a profit. The same traders jumped back into gold in February and March as violence exploded throughout the Middle East and North Africa region and Japan contended with its worst disaster since World War II. This tactical trading has wreaked havoc on the gold market.
A read of the headlines would make it seem that the good times for gold should continue -- rising food prices, riots, inflation, conflict between North and South Korea, U.S. stimulus, devastation in Japan and high unemployment. But these factors, for now, have stopped moving the needle to record highs. Instead investment interest, which gold desperately needs to break and hold its top of $1,445 an ounce, has waned.
The SPDR Gold Shares dropped more than 50 tons of gold in January, a third of what the ETF added in 2010 and has dropped 10 more tons since then. Jon Nadler, senior analyst at Kitco.com, has been warning of a fast and furious exit by traders and hedge funds, which could pummel the gold price.
"I would expect a sell by date in this market could come before the 2011 trading period is over." Nadler predicts that gold could slip to $1,150 an ounce and if that level doesn't hold, gold could drop past $1,000.
Nadler isn't the only bear. IBIS World reiterated its statement that gold had reached the end of its bull run. Over 2011, IBISWorld says that the price will fall 1.3% to $1,209.78, with gold ending the year at $1,150 an ounce.
Goldman Sachs, in a recent research note, said that gold could rally to $1,480 an ounce through June but that once the Federal Reserve raises interest rates and the U.S. economy improves, gold prices will top out. Goldman is calling for a peak in prices in 2012.
Not everyone is as conservative. Big time investor, Jim Rogers, stands behind his long term $2,000 gold price prediction.
"It'll probably be much higher than $2,000 in the next decade but maybe even sooner, I don't know. But to me it seems pretty clear that it'll go to at least $2,000. If you adjust the old high back in 1980 for inflation, gold should be over $2,000 now."
Rogers does think that at some point gold will be a bubble but that prices are far from that level, "at the end everybody owns it, everybody becomes hysterical ... we are halfway along in that process."
Other estimates fall right in the middle. Morgan Stanley has a 2011 gold price target of $1,512 an ounce while JPMorgan Chase will now accept gold as collateral.
Gold mining executives attending the 20th BMO Capital Markets Global Metals & Mining conference in Hollywood, Fla. Feb. 27 - March 2 are also chiming in with their revised targets after having recently reported strong earnings for 2010.
"We look at 2011 seeing $1,500 gold," said Jeff Pontius, chief executive officer of International Tower Hill. Pontius believes that prices could reach as high as $2,000 an ounce in the longer term as the U.S. dollar continues to lose ground.
Mark Bristow, chief executive officer of Randgold Resources, is also betting on a price target of $1,500.
"But you have to look at the cost it comes with," said Bristow. "Because in a rising gold price in dollar terms it means the rest of the world is getting more and more stressed."
Nick Holland, CEO of Gold Fields declined to give his forecast for a high, but believes a solid floor for prices has been set.
"What I would say to you is with the overall cost of production being around $1,000 an ounce, I think that represents a good floor for the gold price," said Holland. "Gold is still underperforming the oil price if you look at the long term relationship ... and if oil goes up further I do believe that's a possibility for gold to increase."
Chuck Jeannes, CEO of Goldcorp, said reaching $1,500 an ounce is "easily achievable." Jeannes said its important to consider highs adjusted for inflation, which could push the price as high as $2,300.
"Gold will ultimately go above $2,000 and I think its going to go in steps so I could see $1,600 this year, which means $40 to $45 silver," said Sean Boyd, CEO of Agnico-Eagle
Mark Cutifani, CEO of AngloGold Ashanti, expects gold to trade between $1,300 and $1,500. Aaron Regent, CEO of Barrick Gold also said he believes the "forward curve would suggest a gold price in the $1,500 range."
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