The year 2009 is almost over, where gold prices seem to have settled above the $1000 an ounce level, as mixed sentiments of both optimism and pessimism boosted the appeal for the shiny metal and led gold prices to hit a new record high at $1226.00 an ounce in December. Gold prices continued to rise throughout 2009, where gold started its rally from as low as $885.00 an ounce, and continued its bullish wave to hit a record high above $1200 an ounce; however, gold struggled to breach the $1000 level as it rebounded from that level several times, before it was able to breach it during October but ever since then gold prices never looked back.

The majority of global economies fell into the depth of recession in 2009, where global economies suffered the worst synchronized recession since WWII, due to the worst financial crisis since the Great Depression, which indeed pushed investors to search for safety measures amid the huge drop in confidence among investors, as gold represented their safe haven. 

It was rather clear that gold prices benefited from the global recession, especially since gold is known to be the perfect hedge for economic uncertainty, where it preserves the value for currencies and investments. We also notice that the appeal for gold was also boosted as the recession started to fade, where demand from the industrial sector increased as a result of rising activity, specifically demand on copper and platinum, and accordingly gold prices were boosted, in addition to demand on gold increasing as well. 

The U.S. dollar dropped heavily against major currencies in 2009; thus providing gold prices with further momentum to incline since a strong inverse relationship exists between the dollar and gold, where the dollar started to decline since March 2009 to hit record lows against major currencies in October, and this provided gold prices with the strength to rise further. 

Several central banks around the globe, including the central banks of Russia and Sri Lanka, where both central banks increased their gold reserves; deemed unprecedented, since it was directly related to the recession that invaded global economies. This supported gold prices, while later in 2009; the Central Bank of India announced buying 200 tons of gold from the IMF, which fueled expectations that more central banks will follow the lead and diversify their reserves. 

Central banks around the globe also reduced their short term interest rates in order to revive global growth and survive the recession; where the BOE slashed its interest rates down to 0.50%, while the ECB reduced its interest rates down to 1.00% and the Federal Reserve Bank reduced its benchmark interest rates down to a record low among a range between 0% and 0.25%. Moreover, governments around the globe intervened with huge fiscal stimulus plans that were aimed at pumping huge amounts of liquidity into the financial system to help ease conditions and support global economies, and this indeed increased the appeal for gold prices as a safe haven. 

The credit crunch managed to hit everything in financial markets and lead to hefty losses from banks and financial institutions around the globe, losses that exceeded $1 trillion around the world. This was reflected negatively on U.S. Treasury Securities and bond markets in general, as investors were worried about the credit rating outlook for both governments and companies as well, this also contributed in increasing the appeal for gold instead of investing in treasury securities. 

Speculators also played a role in the bullish wave that dominated gold prices, which was much like what happened back in 2008, when oil prices hit a record high in July above $147 a barrel, as speculators continued to push gold higher on mere expectations, although some of those expectations proved to be wrong, yet that could not change the overall bullish wave. 

Oil prices started to rise back in 2009 and this indeed supported the rise in gold prices, as gold represents a hedge against inflation, and rising energy prices is one of the main drivers for inflation. Oil prices rose from as low as $34 a barrel to reach their highest this year around $81 a barrel, and since gold and oil have a strong positive relationship, it was normal to see gold prices rising on the back of rising energy prices. 

Expectations started to mount towards the end of 2009 that the recession is coming to an end, and accordingly confidence levels started to increase among investors, resulting in a positive relationship between stock markets and gold prices; the Dow Jones Industrial Average index rose in 2009 to reach 10500 in October, while gold prices hit a record high above $1200 during the same month. 

Most analysts predict that gold prices will reach $1088 during 2010; however, gold prices are still expected to remain above the $1000 level an ounce over the upcoming few years, while silver prices are also expected to hover around $17.00 an ounce during 2010, whereas Platinum is expected to trade around the $1384 levels. 

On the other hand, precious metals might drop over the upcoming period due to the dollar’s exchange rates as well as the outlook for inflation on a global level, since inflation is expected to remain subdued over the upcoming period as a result of the ongoing economic weakness. However, traders are still making profits while central banks continue to buy more gold, the dollar is rising and therefore commodity indexes also rose during this year, while credit rating companies are still showing that there still is a possibility that the U.S. credit rating might be downgraded, and thus all support the upside direction for gold prices…

ecpulse.com