Experts split on outlook for gold prices

“I usually have a very definite idea about gold, but this year I'm undecided. The market is giving us mixed signals,” says Patricia Mohr, vice-president of industry and commodity research with Scotia Capital.

Gold hit a record price of $1,431.25 U.S. per ounce on Dec. 10. Since then, the metal's price has fallen. The outlook for 2011 is uncertain.

Since mid-December, some investors have been taking their profits. And concern over the debt crisis in the Eurozone has eased, further reducing gold prices.

There are signs the U.S. economy is improving. That generally results in the U.S. dollar going up and gold going down.

“Sometimes in periods of uncertainty, investors shift to the safe haven of U.S. treasury bills or bonds rather than gold. This is what's happening now,” says Mohr. “And U.S. investors appear willing to take on more risk.

“I think U.S. equities will do really well in 2011,” she adds.

A pullback can spook some investors; if all sell quickly, gold prices will decline further, faster.

“Gold goes up like an escalator, but down like an elevator,” Avery Shenfield, chief economist at CIBC, warned investors at an Outlook 2011 conference.

Other experts remain bullish on gold.

Jeff Clark, California-based editor of the Big Gold newsletter and senior precious metals analyst with Casey Research, spoke with about 20 noted gold experts, economists and authors in December.

“In fact, if there is a pullback on gold, this will be a buying opportunity if you missed the run from $800 to $1,300 per ounce,” says Clark.

In 2010, gold gained 30.7 per cent. From 2002 to 2010, gold's average annual gain was 20.4 per cent. The basics of supply-and-demand indicate that the price of gold will go higher, says Clark. Demand for the metal is rising, supply is tight and getting tighter, and production is flat.

“The real reason that people own gold is for protection against the U.S. dollar. And I don't think I'm some kind of fringe thinker on this,” he adds.

The U.S. cannot continue to devalue its currency through quantitative easing, and inflation is bound to rise, which paves the way for an increase in demand for gold.

So, can gold go to $2,000 per ounce? Clark thinks it will go much higher.

Kevin MacLean is vice-president and senior portfolio manager of the Toronto-based Sentry Precious Metals Growth Fund. His fund is a multi-year winner of the Lipper Awards, which track funds that have consistently performed well.

“I think gold can triple in this decade,” says MacLean, who puts annual increases in the 10 to 15 per cent range.

That would put gold in the $4,000- to $5,000-per-ounce range in less than 10 years.

The big indicator for how high gold will go is how low the U.S. dollar will sink. What's driving the demand for gold? The short answer is fear, uncertainty and doubt.

The Congressional Budget Office forecasts the U.S. debt-to-GDP will climb to 100 per cent by 2020.

“I think deficits are here for many, many years to come,” says MacLean. “The truth is that the U.S. is broke and is depending on printed money. This is bad for the U.S. dollar and good for the gold market.”

If the U.S. is the Lone Ranger on long-term debt, then the Eurozone is Tonto. Globally, there are about 20 countries with very high debt-to-GDP ratios.

Scotia Capital's Mohr says for gold to have another surge, there would have to be renewed concern about both the U.S. and Eurozone deficits.