If there is no QE3 (quantitative easing 3 – more money printing), will the price of gold collapse along with every other commodity out there? Those who think gold is less a type of real money and more a bubble think so. We don’t.
Capital Economics is on our side: a recent note from them sums up the four excellent arguments for the gold price reaching $2,000 an ounce regardless of QE.
First, the fragility of the global economy means that interest rates will stay lower for longer, hence keeping the cost of holding gold relatively low.
Second, sovereign debt worries will continue to “enhance gold’s status as a safe haven”.
Third, central banks have become net purchasers of gold, and are likely to remain so.
And fourth, private sector demand for gold in China is rising fast, “aided by limited high quality alternatives for savers and the increased availability of investment vehicles for gold”.
The result? Capital Economics “remains firmly of the view” that gold prices will rise to $2,000 an ounce regardless of whether we see QE3 or not. We agree – but we’d also add that if we do see QE3, gold at $2,000 is going to look pretty cheap.