3 Real Risks for the Price of Gold

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tdp2664 InvestorPlace If you’ve been paying attention, you’ll 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 gold’s 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 world’s 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 isn’t after you account for inflation. And as BullionVault never tires of reminding people, it’s 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. That’s clear in our Global Gold Index, mapped above. The GGI prices gold against a weighted basket of the world’s 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 hadn’t already risen fivefold in the previous 15 years. Still, this run can’t continue indefinitely. And pending the big downturn in gold prices expected