The “Two Outlooks” for Gold Prices

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And two recent columns in particular on gold generated a larger-than-normal response.

By William Patalon III, Executive Editor, Money Morning


One of the best parts of my job is when I hear back from you.

And two recent columns in particular on gold generated a larger-than-normal response.

The comments were related to the two-parter on gold prices that we published on Nov. 5 (“The Secret Gold Standard”) and Nov. 13 (“Why Obama’s Victory Means Higher Gold Prices).

Let’s take a look at what you had to say.

The comments related to the “Secret Gold Standard” column were especially intriguing because a number of you thought I was advocating a literal return to the “gold standard.”

I wasn’t, of course. I employed the term as a convenient metaphor to try and help folks understand how the world’s central banks were adding gold reserves for the first time in nearly a quarter century.

In fact, a global return to the gold standard isn’t possible – there literally isn’t enough gold to allow that to happen. It would crimp money-supply growth in such a way that global economic growth would be stymied.

A number of you wrote in to make that same point – including one reader who actually performed all the necessary calculations to make his case.

Al K. wrote in to ask: “Some analysts believe gold will drop further & others believe gold has bottomed out now. What do the experts of Money Morning believe?”

Since Al requested an “expert” opinion – a fair request – I put in a call to Chief Investment Strategist Keith Fitz-Gerald.

The Outlook For Gold Prices

Right now, Keith explained, there are two separate outlooks for gold – one for the near-term and another for the longer-term.

“If you’re looking at the long haul, I believe that gold is tremendously undervalued,” Keith told me. “I expect a combination of factors – including demand, the trillions of dollars that have been printed/injected into the economy and the development of new partially asset-backed international drawing rights – to create higher prices ahead.”

But the outlook for gold is very different in the short-run, Keith explained.

“In that near-term time horizon, however, I still believe the risk is to the downside,” he said. “The Eurozone situation remains problematic on a number of levels. And gold prices could also correct (fall), if traders have to contend with redemption requests, or if there are other factors that force them to raise cash.”

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