Has gold lost its appeal?

TRIBUNE NEWS NETWORK

DOHA

Gold prices are one of the strongest-performing investments this decade increased from 282 $ per ounce at the beginning of 2000 to their current level of $ 1.648 per ounce.

This amounts to total annual output of approximately 14 percent compared with about 2 percent for the S & P 500 and about 7 percent for 10-year U.s. Treasury bonds, according to a release by QNB group, in Doha on Saturday gold prices spiked to an alltime high closing price of $ 1,840 per ounce on September 6, 2011. Investors were attracted to gold as a relatively safe haven amid double sovereign crises in the US and Europe. These crises began to emerge in 2010 when gold prices rose 28 per cent from $ 1,101 at the beginning of the year to $ 1406 end of the year.

There are several explanations of what caused the sharp increase in gold prices.

First, increased the crises the occupation of traditional safe-haven assets such as gold and U.s. Treasuries. Demand for US Treasuries has driven up their prices, driving down yields to the extent that real return negative.

This increased the appeal of the safe haven of gold against the US Treasuries.

In addition, gold is often considered a hedge against inflation if the value tends to increase with the general price level.

The risk to economic growth posed by crises have led to expectations for looser monetary policies of central banks, in particular, quantitative easing. In turn, this would lead to higher prices, attracting investors gold are expected.

In addition, increased the increased risk and volatility in the financial markets and the concerns about the depreciation of currencies, especially the euro also the appeal of gold as a more reliable store of absolute long-term value.

In addition, the demand for gold surged 7 percent in Q3 2011 versus Q2 alone, that strong support to prices. The largest component of the global demand for gold for jewelry production, accounts for about 40 percent.

Most of the Q3 2011 increase in demand, however, came from private sector purchases of bars and coins, as a result of gold's job at the time as a store of value instead of demand for jewelry making or industrial use.

The purchase of gold by one Eurosystem central banks also rose significantly in Q3 2011 as gold was more attractive for this sector compared to Euro and US Dollar-denominated assets.

Finally, the spike was also partly driven by a speculative bubble with prices overextending itself on before the bubble burst. Gold prices plunged 16 percent from their highs of $ 1,840 to $ 1,651 in just three weeks.

Since Q3 2011, gold prices remained tied in a range of $ 1,530 to $ 1800 and close to the middle of this range at $ 26,625 currently.

Many of the market risks to the spike in prices in September 2011 led his now largely thought is gone.

Real interest rates are starting to side of and the Outlook for economic growth has improved, lowering the expectations for quantitative easing.

The balance sheet of the ECB has fallen from € 3.1 trillion in mid 2012 to € 2.8 trillion at present, although the Federal Reserve has left its balance sheet to expand purchases of Treasury and mortgagebacked securities unchanged at $ 85bn per month at its last meeting of the monetary policy.

The total demand for gold has dropped by 2 percent to 1,188 tonnes in Q3 2012 of Q3 2011. In this period, demand for gold, mainly for investment purposes, from the financial sector, with the exception of central banks, picked up sharply while the demand for gold as a store of value has fallen about 30 percent (we assume that the question of central banks and purchases of gold bar and represent the demand for gold as a store of value coins). Meanwhile, the demand for gold for use in industry and jewelry production has remained flat.

Another factor keeping a lid on gold prices, as expressed in u.s. dollars, is a slight appreciation of the dollar since Q3 2011. All other things being equal, the gold price tends to fall to compensate for an increase in the value of the dollar.

Since the peak in early September 2011 at $ 1,840, gold's performance is impressive, suggest that gold may have lost some of his job. According to QNB group include the main downside risks to price central banks tightening monetary policy by cutting back on quantitative easing and raising interest rates.