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Commodities: A golden outlook

Ten-year bull run of gold prices is expected to continue.  

Precious metal investment company Arteus Capital expects gold prices to rise after a correction of almost $300 in September. According to Arteus, the price of gold could reach $2,000 an ounce by the end of this year. Prices started 2011 just above $1,400 an ounce and exceeded the $1,900 mark for the first time ever in August. 

Gold has long been seen as a safe haven for investors, especially in times of economic downturn. As concerns grow over the eurozone debt crisis and global economic uncertainties, gold’s ten-year bull-run is expected to continue. Some analysts say it might even hit $2,500/ounce in the medium-term. 

Based on a technical analysis, when the price of gold reaches the $1,805-1,815 level again, there will be a correction to about $1,775 an ounce, Arteus said. This in turn will spawn a shopping spree, which could again push the price up to $1,850 or even $1,950. However, the usual year-end rush for the yellow metal could altogether override this scenario, Arteus notes. 

According to Arteus’ more pessimistic scenario, the correction could pull the price of gold down to $1,720 an ounce. However, a recovery is almost guaranteed from this level.

But is the clamor for gold just another bubble, as some claim? One of the most significant factors determining the price of gold is the return of central banks as net buyers of the precious metal. In addition, every other asset class seems to be too risky, and investors have to put their money somewhere. On the other hand, gold is a useless asset, as it does not produce earnings, does not pay dividends and has very limited industrial uses. 

Bubble or not, gold prices are expected to see higher volatility with exchange-traded funds (ETFs) that invest in gold playing an increasing role in determining prices. The SPDR Gold Trust ETF, the world’s largest gold-backed ETF with around $72 billion in net assets, is one of the most popular funds for investors seeking exposure to gold.