Economic turnaround shines spotlight on gold

2009 was a good year for gold. It ended the year higher than it had ended any other, after posting a series of all time highs late in the year, despite a sell off in the lead up to Christmas.

Ten years ago talk was of gold losing its precious status – with prices pushed well under $300 an ounce as now British PM, Gordon Brown, famously sold off more than 395 tonnes at an average price of $275 an ounce, and other central banks, from Switzerland to Canada, followed suit.

After peaking just over $1000 an ounce in the lead up to the global financial crisis, gold slumped initially as investors deserted nearly all commodities in late 2008, and the U.S. dollar became the ultimate last resort store of value. Its low point in November 2008 was just over $700 an ounce.

But as focus turned from near financial meltdown in 2008 to stimulating the global economy in 2009, the money being printed brought gold right into the spotlight – keeping well above $900 for most of the first half of the year, before powering to all time highs beyond $1200 in November before pre Christmas profit taking saw it ease back to the $1100 an ounce mark. Unicredit Securities development strategist Vladimir Osakovsky says the price boom is largely attributable to economic stimulus and financial system liquidity measures and which have seen quantitative easing – or simply put, money printing, come into vogue.

“This big rally in gold, for example, is clearly driven by this big money printing in the developed countries and U.S. in particular. And this rally will last as long as money is being printed. And unfortunately, or fortunately, if they will stop printing money this rally can easily reverse.”

IFC Metropol Senior Analyst, Denis Nushtaev, says the upside for gold maybe limited as the global economy recovers and governments start to withdraw stimulus measures.

“Most of the investors already priced in their risks, and probably played enough with gold, and what we see is gradual recovery in the global economy – especially U.S.”

But the global recovery is far from assured. The factors that drove the gold price to record highs in 2009 will still be with us for at least the start of 2010. Central banks are likely to continue diversifying away from the dollar for their reserves and gold still represents one of the most viable alternative stores of value.