As the European currency and debt crisis unfolded during the final weeks of 2011 the price of gold went from a high of around $1800/oz to below $1600/oz. The appreciation of the value of the dollar, with banks and investors exchanging their euro holdings for dollars, is the main source of this drastic movement. Granted, for those of you who invested in gold at the beginning of the year you have still seen almost a 20% return on your investment and for those that have been in for 5 years you are experiencing a 160% return. The question moving forward is will newcomers to gold investing be able to experience similar rates of return.
Gold is subject to too much short-term volatility to expect a rapid recovery, however there are several signs that point to if investing in gold in the manner in which it is meant to be invested (long-term) then over the next few years there will be nice annual double-digit rates of return. The single most impacting variable on the value of gold is the value of the dollar. Over time, the dollar’s role as the world’s de facto reserve currency will gradually meet challengers. As a result its value will adjust accordingly. On December 25, for example, the world’s second and third largest economies (China and Japan) established the grounds for directly trading their currencies with one another instead of using the dollar as the proxy. Over time and particularly as the amount of trade increases between the two countries, this will amount to trillions of dollars in transactions in which the dollar will no longer be directly involved. Of course, this will not happen over night, but it is a perfect illustration of the resilience of gold gaining a few tenths of a percent every day.
Another sign is that national banks are beginning to demand delivery of their gold holdings abroad. Venezuela may not have been the first but it was the most vocal of national governments demanding to repatriate its gold reserves. This case alone involves about 100 tons: a significant amount of which is being used to back ETFs and may or may not be in the actual vaults. Should other countries follow suit there will be tremendous demand-side pressure and will undoubtedly drive the price upward. Industry-driven demand will also play a role as consumer electronics, medical devices and renewable energy applications all rely on the metal.
All-in-all it is well within expectation that gold will reach the $3000-$4000 range within the next few years. The question now is how best to get in so that you are able to experience the doubling of the value of your investment. Dubai-based GBULLION DMCC (gbullion.com) is a trusted name in the Online gold investing space. With the flexibility of serving novice investors through their strategically designed Internet presence as well as the know-how to provide expert face-to-face service with larger scale investors, they are poised to be one of the dominant brands in the age of +$2000 gold.
