Gold has been notoriously difficult to predict in the past. Supply always remains relatively stable, making it a good way to maintain value. Extracting and refining gold is a labor-intensive process, so the annual supply of gold is increasing at a very slow and steady rate, meaning there are no surprises in the market. The other factors that influence gold are the value of fiat currencies such as the U.S.
dollar. The euro, the British pound sterling and the Japanese yen, to a lesser extent, also influence the price of gold. Although the supply of gold is very stable, global events surrounding gold can vary greatly and cause changes in the price of gold. For next year, the Dutch bank expects gold prices to range between 1450 and around 1500 US dollars per ounce.
According to Robin Bhar, an analyst at Societe Generale SA in London and, in Bloomberg's view, the most accurate predictor of precious metals in the last two years, “a lot of gold has been held for speculative, investment and value reserve purposes, and that is no small reason in the future. Generally speaking, investors flock to gold as a stable store of value when currencies and other monetary instruments are no longer reliable. Even the demand for investment in gold could increase if prices seemed to have found a base and started to rise again. If your central macroeconomic argument, according to which the acute phase of the global crisis is probably over and growth will slowly improve during the second half of the year, proves correct, the relative attractiveness of gold is likely to “diminish as scary operations fade away.” Analysts expect prices to be driven by investment and the purchase of gold by central banks as a reserve asset in the portfolio.
The price of gold is likely to be supported by strong retail demand from China and India, while only limited support is expected to come from central banks. This is mainly due to the strength of the US dollar and higher US interest rates, which, in general, would lead to a decline in demand for investment gold. Global economic growth, inflation rates, U.S. Treasury yield, interest rate policies and geopolitical risks affect the price of gold.
Among the reasons given are the adoption of a more flexible monetary policy by major central banks, the likely recovery in Indian consumption, strong Chinese demand based on China's GDP growth, and strong demand from central banks, particularly in emerging countries, which would continue to accumulate gold as a strategy to diversify their foreign exchange holdings. This, combined with more attractive prices and greater demand for jewelry from China, should be an incentive for investors to return to investing in gold and underpin a price recovery to $1300. The price of gold is also likely to be supported by the revival of demand in China and inflows to gold ETFs. In addition, the debt crisis in the eurozone and the geopolitical risks in the Middle East are considered to be important factors for a sustained demand for gold as a “safe haven”.
As the main driver of the price of gold, they identify investor demand, who hope it will not be offset by the increase in industrial and jewelry demand due to falling prices.