• Morgan Stanley forecast a base price of $1,200 for gold in 2010 with peaks above $1300.
• Macquarie (largest investment bank in Australia) raised their forecast for gold to $1150 per ounce in 2010 (Dec 09)
• Goldman Sachs announced on December 3rd that it has lifted its 12-month gold price outlook to $1350 per ounce from a previous estimate of $950 (Dec 09)
• Merrill Lynch sees gold at $960 an ounce in 2009 as a whole, rising to $1500 in the next 18 months

In 2011, the bullish view continues,   Most firms believe that macroeconomic conditions such as rising global debt and upward pressure on inflation will cause gold to push higher to new all time highs.

• Goldman believes low U.S. interest rates will continue to underpin the rally in commodities like gold. The firm expects the precious metal futures to climb to $1,690/oz by the end of 2011 and continue to move higher.
• Merrill Lynch predict Gold remains in a secular bull market with projected resistances at $1500-1600/oz and then in the $2000-2300 area. We have raised our long-term targets to $2000 -3000. Major support is $1265 to $1160.
• Morgan Stanley  has raised their  2011 gold price forecast in their base case by 14.3%, to an average US$1,315/oz, and in their bull case, which anticipates a more aggressive level of dollar weakness and a protracted period of negative real interest rates, Morgan Stanley has raised their price forecast to USD $1,512/oz from US$1,380/oz.
• Barclays Capital’s MD Paul Horsnell predicts that the gold price is likely to reach $1,850/oz by the end of 2011 due to strong demand from emerging markets and limited supply.

We agree with Barclay’s and Goldman and predict that gold will hit the upper end of the range around $1700-1750 by the end of 2011.    Unrest in the Mideast ,  Inflationary pressures both domestically and abroad as well as a rising debt load will provide support to gold prices in 2011.     Look for our upcoming article on the best takeover targets in 2011.   Subscribe to our email list to get the scoop to moment it hits the press!

Regarding Gold In supply news, South Africa’s statistics service said the country’s gold output fell a full 18.2 percent year-on-year in January. The republic was the world’s second largest gold miner last year behind China, according to the World Gold Council. The chief executive of the world’s number three gold miner, Anglogold Ashanti said on Monday the company viewed price dips below $1,100 an ounce as an opportunity to accelerate buybacks of its outstanding hedged positions which bolsters their overall strategy that predicts long term gold prices above $1000 per ounce. Anglogold Ashanti is not the only large miner to start removing hedges,  a full 70% of large miners are looking at significantly reducing gold hedges. Richard O’Brien, CEO of No. 2 Newmont Mining Corp (NEM.N), said he expects inflation will wreak havoc as central banks around the world continue to use stimulus programs to spur economic recovery. In a recent summit he stated the following:

“My view is that each country in the world, to some extent, has fueled the reigniting of its economy through issuance of additional currencies, The long-term impact of all the stimulus programs that we have seen in the U.S. and in European countries is going to come home to roost.”

If we look at a short term chart of gold we see that gold is near a critical support area. If it breaks current levels the next support point is $106.88 and then the 200 day MA just above $102.  If it holds at current levels,  it could rise toward $111.70 which represents the upper Bollinger Band

After breaking through the $1200 level towards the end of 2009 there has been a correction of sorts although the pattern of prices of this precious metal never falling for two consecutive months, that has held true over the last decade, has yet to be broken.    Gold has recently bounced back from short term lows to above $1140 per ounce.

Some market fundamentals that are providing support for gold prices include unconfirmed and persistent rumors that the Chinese government is considering buying the remaining 191 tonnes of IMF gold reserves for sale. A large increase in the expected year on year February gold import figures for India also suggest that physical demand will remain strong in 2010. Countering these factors are pessimistic macro economic predictions from many analysts and the continuing strength of the US dollar.

Conflicting motives for buyers of gold only add to the confusion as to the future direction of the spot market. If the global economic outlook improves and the Euro stabilizes then there may be an unwinding of positions taken as a hedge against a possible further deterioration in the world economy as a whole. This downward pressure on the price of gold could be met with buying interest from those who see the gold bullion shortage as a reason for optimism but are staying on the sidelines until a clearer picture emerges regarding the outlook for the US economy and the EU’s possible moves to shore up the weaker countries in the Euro-zone.

As an investment against future inflation the picture is no clearer. If the US and UK governments continue to print money in an effort to stimulate their respective economies then inflation will be expected to rise as a result. However, recent figures from both countries have yet to suggest that this is happening. In fact, hints that China is already tightening its stimulus policies and the surprise hike in interest rates that banks pay for emergency loans in the US could be taken as a sign that inflation figures will remain flat for the foreseeable future.     For the past few weeks gold has been trading in a $50 range with buying interest on dips and until a strong breakout occurs in one direction or the other, it is hard to predict a long term trend.    The next test will be at $1200 which was tested in December of 2009.  If Gold can break through that psychological mark,  than a run to $1300 or $1400 has a high likelihood.

The main reason for this according to analysts is the bleak economic outlook in the EU. Worries concerning the stability of the Euro, as four or five countries in particular look to be in dire need of financial aid, have resulted in a decline in this currency’s value against both the greenback and gold. Greece is causing the most concern with no details of a concrete rescue plan yet to emerge although there had been some vague releases on a potential plan or guarantee of debt about a week ago.   

These uncertainties, along with Dubai’s plans to restructure approximately $22 billion dollars of debt if it can reach agreement with its creditors have led to the dollar becoming a more appealing alternative in which to hold assets than other major currencies. At the same time money is still pouring into gold due to the sluggish recovery in the global economy in general.       At the heart of the new trend are questions over the long term viability of the Euro itself. Since its inception the resulting Euro-zone bond market benefited the poorer members of the EU as it enabled them to borrow at roughly the same rates as the stronger nations such as Germany. However, since the worldwide financial meltdown intensified during the last quarter of 2008, investors began to demand a higher rate of return from those countries with unhealthy budget and trade deficits.

 Instead of the intended convergence of interest rates in the Euro-zone under the umbrella of the Euro then, a situation has arisen where they have diverged by considerable margins as far as government borrowing is concerned. The difference in yields on bonds issued by Germany and those issued by Greece is wider now than it has been since the single European currency was first introduced, although it has narrowed slightly in the last few days as hopes of a bailout rose.      This situation has resulted in the Euro losing ground to the tune of almost 5% against the dollar in 2010, whilst the continuing flight into gold has meant that this commodity has increased in value by over 4% in the same period, in Euro terms (as illustrated in the graphic below). The ongoing doubts as to whether or not the EU can put together a package to turn things around is likely to see the continuation of this new trend for the foreseeable future.

This week has been relatively quiet on news and gold has traded sideways and slightly down through Monday.  In looking at the GLD ETF chart above, there is support at the 50 day Moving Average at 108.58 as well as at the Bollinger Band Midpoint at 107.27.  We expect that GLD will hold its ground this week and test the Upper Bollinger Band at just under $111.00 as it marches back towards its December 09 high.

The rules are simple:

1. Guess the closing price of the StreetTracks GLD: 154.55 +1.15% ETF this Friday, February 26th, 2010 at 4:00PM Eastern
2. Enter your guess below (ie $112.10), make sure your email is correct so we can contact you if you are the winner.    Signing up will also subscribe you to our latest updates on contests and news (you can unsubscribe at any time)
3. If you are exactly right, you get the cash equivalent of a 5 gram gold nugget (about $175) sent via paypal or snail mail. You can enter once per day and the deadline for entries is Thursday, Feb 25th at 11:59PM. The editors of goldystocks will be the sole arbiter in case of any dispute.