Gold prices forecast will likely march $2,000 an ounce end of this year 2011

Gold prices forecast will likely march $2,000 an ounce end of this year 2011 ; As traders close the books on August, the volatility that was the hallmark of this month’s activity is likely to continue into September and year-end. Market watchers said the factors that caused the run up continue to be in place for Gold – strong speculative interest, worries about the eurozone debt problems and political intransigence in the U.S.



Gold prices will likely march even higher, with $2,000 an ounce expected by the end of this year, if not sooner; however, sizable price swings probably will accompany the uptrend.





Most-active December gold futures on the Comex division of the New York Mercantile Exchange settled at $1,831.70 an ounce on Wednesday, up $1.90. On the month, gold prices rose 12%, about $200.



The summer is normally supposed to be a quiet time of weaker prices for the gold market, but that wasn’t the case this year. Investors sought the safe-haven of gold as worries in Europe, whether it was the funding of European banks or the economic health of southern-tier countries. A fractious debate between Republicans and Democrats over raising the debt ceiling also led to “risk-off” trading.



All of that pushed prices to all-time nominal highs of $1,917.90 – and for a short-term pushed the market capitalization of the largest gold exchange-traded fund, SPDR Gold Trust (GLD), above the SPDR S&P 500 (SPY) EFT, normally biggest ETF.



That sort of action in gold suggested an extreme level of speculative participation, said Bill O’Neill, one of the principals with LOGIC Advisors.



After reaching that all-time nominal high, gold prices fell $200 swiftly, but since the break the market has recouped about half of those losses.



“I think it (the price break) was healthy and it needed to develop,” O’Neill said.



Prices did not stay at those initial lower levels for long, something which surprised several market watchers.



“Some people expected gold to back down to $1,600, but here we are end of the month and we’re above $1,840. I’m impressed with how it rebounded,” said Mike Zarembski, futures analyst with options Xpress.



O’Neill said there was strong buying on the break in gold, particularly out of Asia and Europe.



Now, the market is headed into September and the fourth-quarter of the year, seasonally a strong time for prices. The long-term trend is higher, but that doesn’t mean prices will go straight up. Zarembski and O’Neill expect more of a two-sided trade, which means volatile action could be the norm. Read Gold prices prediction september 2011





“We didn’t put to rest anything that caused the volatility in August. There was a lot of upheaval and nothing was solved…. I see a very volatile fourth quarter as nothing has been decided in the U.S. and E.U.,” Zarembski said.



O’Neill also said there is more of an inflation threat now than there was earlier this year, giving Gold more support.



Dave Meger, director of metals trading at Vision Financial Markets, said the heightened speculative trading in gold is why the market will depart from its usual slow grind higher into the end of the year and become more erratic. “We absolutely expect it to more volatile… to see more back and forth,” he said.



Volatility is good news for short-term traders who like to take advantage of price swings, but not necessarily for the long-term investor. “The buy-and-hold investor needs to believe in the underlying fundamentals… I don’t recommend chasing rallies, especially over the next couple of weeks. Dips will be your buying opportunities,” Meger said.



O’Neill suggested long-dated options with a bullish bias as another way to play rallies in a conservative manner. Long-dated options are essentially options that don’t expire right away.



Both O’Neill and Zarembski said gold prices could go to $2,000 by the end of the year, with Zarembski saying that level could be hit by Thanksgiving if there is another break in the equities markets because of bad economic news or governmental problems in the U.S. or E.U.



But Zarembski doesn’t rule out a trip to $1,600, either. If there is another “risk-off” move and traders decide to move to cash, then gold prices could suffer. Also, he said, the market acts as if it wants to trade to $2,000. Once it accomplishes that task, it could retreat.



“I think we’ll go to $2,000, have one blow-off type move (up) and then pull back,” Zarembski said.



Mark Leibovit, chief market strategist, VR Gold Trader.com, said while he remains long-term bullish gold, he’s watching for a possible pullback in the short-term for gold after spot prices hit resistance at $1,841 and pulled back to $1,810.



“We sometimes see a pullback into early September before we resume higher…. Should a large sell-off unfold now or at a later date, the 40-week moving average … (currently standing around $1,490) should provide major support. A theoretical ‘head-and-shoulder’ technical pattern suggests that if we take out $1,702, we could see $1,500 - so the two indicators match up in that regard,” he said.



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