In a year when the market has been concerned about a number of economic storms - the effects of various government stimulus programs, a faltering global recovery from the financial tsunami of 2008 - gold has never been a more attractive alternative for investors.

Whether it's a reaction to an uncertain macroeconomic environment unleashed by the second round of US quantitative easing (QE2), the ongoing tribulations of the European debt crisis or monetary tightening measures on the mainland, gold has been seen as a safe haven. And the numbers would seem to bear this out.

As of December 29, the price of gold stood at a historical high of $1,412.40 per ounce - a rise of 26 percent in 2010. This has outperformed the city's Hang Seng Index, which is up 5.38 percent for the year. It has also outgained the 9.46 percent increase of the US Dow Jones Industrial index and the 5.40 percent jump seen in 30-year US Treasuries.

At the beginning of 2010, gold was still fetching about $1,120 an ounce but its rise coincided with the onset of the European debt crisis in May. Rising to more than $1,200 an ounce, it then climbed steadily over the summer before reaching $1,400 an ounce after the US announced its QE2 monetary policy in early November.

However, some analysts are warning that the gold bull market might be coming to an end.

"Though factors from the European debt crisis and the US QE2 policy might linger on, financial markets will digest these factors if the US economy shows signs of a gradual recovery in 2011," said Anderson Cheung, deputy managing director of Mitsui Bussan Precious Metals (HK). "Gold prices could reach $1,550 in the first half of 2011 but slump to $1,350 in the second."

"If the US economic recovery proves sustainable, then it may gradually raise its interest rates, which would curtail the surge in gold prices," he added.

Meanwhile, Cantor Fitzgerald Capital Markets (HK) Strategy Head Bruce Wong predicted that gold prices would fall in a wide range between $1,200 and $1,600 an ounce. He said investors should wait until it falls to the $1,200 level before buying, citing a belief that the US economy will see a moderate recovery in 2011.

"The US Dollar Index, which traces dollar price movement against all major currencies, may see a 9 percent rebound to 86 in 2011," Wong said. "With the stability of the US dollar and the unlikelihood of a QE3 due to economic stabilization, I predict that gold prices will see a 15 percent downside correction from its current price of $1,410 an ounce next year."

Wong recommended getting out of gold and investing in the US dollar instead of the yen, euro, or pound sterling due to weaknesses in the Japanese, European, and British economies. He added that investors should wait for commodity currencies such as the Australian, Canadian and New Zealand dollars to decline 10 to 15 percent before accumulating them. However, structural macroeconomic trends are still favorable to these currencies, Wong said.

China Daily

(HK Edition 12/31/2010 page3)