Five-Year Performance of Gold
The past four years saw the price of gold triple in value from just over $600in January of 2007 to nearly $2,000 in September of 2011. While the pricedropped off some since September, investors show continued confidence inthe metal as economic turmoil around the world creates instability in otherinvestment vehicles.
Gold: 2007 and 2008 Performance
2007 High: $841 Low: $608
2008 High: $1,011 Low: $712
The biggest reason for the rise in the price of gold was the recession that hitin 2007-2008. Gold has a very low correlation to stocks and bonds so whenthe sub-prime mortgage crisis occurred in late 2007, investors turned to goldas a safe haven. Gold rose steadily throughout 2007 and into 2008 startingat just over $600 an ounce in January 2007 and peaking at $1,000 an ouncein March 2008.However, the price fell to $700, after Lehman Brothers filed for bankruptcyprotection. Contemporary analysts suggested that the price drop was purelybased on supply and demand among other factors, and that gold would onceagain rise. In short, once the financial crisis hit, people were forced to divestall assets, including gold, to cover their losses.
Gold: 2009 and 2010 Performance
2009 High: $1,213 Low: $810
2010 High: $1,421 Low: $1,058
The price drop did not last long, however, as demand was still extremelyhigh. Over the two-year period of 2009-2010, the price of gold continued torise from $880 at the start of 2009, to $1,425 at the end of 2010. Thoughthe recession officially ended in the middle of 2009, the dollar remainedweak and the European debt crisis made the euro look risky. Also, theUnited States lowered interest rates and bailed out the automobile industryin desperate attempts to revive its economy. Both of these events signaledthe potential for rising inflation. Gold is seen by many investors as a hedgeagainst inflation as well as the depreciation of flat currency. Hence, demandwas still strong and gold continued to rise.
2011 High: $48.70 Low: $26.16
Gold reached its highest nominal price ever in August 2011, reaching$1,923.70 per ounce. It did decline in the beginning of the year though,dropping to $1,300 in February. The forecasts for 2012 are generallyfavorable, mostly predicting gold will hover just below $2,000 USD andperhaps even go above that.
Gold: 2012 and Beyond
Standard Chartered released a report in June of 2011 that is by far the themost bullish of the forecasts, predicting that gold will reach $2,100 by 2014and perhaps as high as $5,000 USD by 2020. Perhaps most interesting aboutthe increase price in gold per ounce will have to do with the fact that goldmining is projected to decrease.Early indications for 2012 were that gold costs would be closely tied to theGreece economic meltdown in the European Union. Additionally, in the US,the Federal Reserve is steadfast in keeping interest rates at historic lowsuntil 2014. This will inherently impact the gold market, and could potentiallydrive the prices higher. One of the main opposition arguments over keepinginterest rates low is that it could speed up inflation. The fed says it willcontinue to monitor inflation, which could impact gold prices in the wrongdirection.