3 Real Risks for the Price of Gold

If youve been paying attention, youll remember how gold can make financial
crises fun . Gold bulls were so short of things to keep them awake at night that
many will be grateful for the 20% plunge of late 2011. We think the peak would
be toward the end of this year or maybe sometime in the first half of next year,
says Neil Meader, research director at precious-metals consultancy GFMS, which
Thomson-Reuters acquired in 2011. The trigger for golds final top and decline?
Anything that really signals to the market that the structural imbalances and
the problems affecting the strength of various currencies are moving behind us
that we are moving beyond this current financial-crisis situation, says Meader,
speaking to TheStreet after launching GFMS latest Gold Survey Update in New York
on Tuesday. Now, whatever you make of that risk, gold investors should perhaps
be pleased to see the worlds leading data and analysis provider flagging such an
event . Like pullbacks in a bull market, it can only be healthy to consider the
inevitable end. In particular, says Meader, one overt trigger that is worth
looking for is the start of a serious ratcheting up of interest rates. Because
for gold investment to be popular, you do need really low interest rates. Of
course, the risk of higher interest rates looks about as high right now as
interest rates themselves i.e., zero. Even where the cost of borrowing or the
return on cash is better than nothing, it isnt after you account for inflation.
And as BullionVault never tires of reminding people, its that rate the real
rate of interest that really matters to the ebb and flow of gold demand. Avg
annual yield on 10-year T-bonds after inflation Real change in dollar gold price
after inflation 1970-1980 0.41% 806% 1980-1990 5.03% -61% 1990-2000 3.57% -47%
2000 to date 1.66% 303% Hence, the rise in global gold prices , rather than just
in dollars, over the last decade. Thats clear in our Global Gold Index, mapped
above. The GGI prices gold against a weighted basket of the worlds top 10
currencies, as measured by the size of their issuing economy. That has risen
fivefold over the last decade, just as the S&P index of the 500 largest U.S.
corporations did in the 1990s. Unlike the S&P, however, gold hadnt already risen
fivefold in the previous 15 years. Still, this run cant continue indefinitely.
And pending the big downturn in gold prices expected