Gold forecasts bolstered by continued rise

Forecasts of a $900 gold price by the end of the year have been bolstered by the metal’s performance in the last couple of days.

The gold price exceeded $840 yesterday and if the current rate of rise continues it could reach $950 by the year end.

In addition to a weak dollar, the popularity of gold could have been enhanced by reports that China is considering moving some of its $1.43 trillion of foreign-exchange reserves into stronger currencies.

If this shift begins to take place, the effect on the value of the US dollar could be seriously detrimental and gold would benefit as a result.

Reports of the proposed action by China are based on remarks made by Cheng Siwei, vice chairman of China’s National People’s Congress.

While talk of a $1,000 gold price next year was being dismissed by analysts only a few months ago, it now looks as though this price is attainable.

However, the downward spiral of the dollar indicates trouble for the US economy and those of its major trading partners, especially if the Federal Reserve reduces interest rates again.

Economists believe that in time, exporters to the US will take action to try and slow or reverse the dollar’s decline, as failing this they could become priced out of the US market.

In this scenario, the gold price is likely to be sensitive to even a temporary reversal in the value of the dollar, and this could prove disconcerting to gold investors.