The yellow metal dipped to a six-week low under $1,500 an ounce this week. Parliamentary support for Greece's latest austerity package allayed fears of an immediate debt default. The end of the Fed's money-printing programme (QE2), which had stoked fears of inflation, has also tempered enthusiasm for a safe haven. But the gold bull market that began in 2001 is unlikely to be over yet.
For starters, the euro crisis is set to drag on. With developed economies still weak, there is talk of more money printing (quantitative easing) in both Britain and America. Even if this fails to materialise, interest rates all over the world are negative in inflation-adjusted terms. So fears of currency instability and debasement through inflation are likely to endure. That's good news for gold, the ultimate currency and store of value.
Moreover, says Wirtschaftswoche, more and more Chinese and Indian investors are buying gold to guard against inflation. Emerging-market central banks are also stocking up on it in order to diversify away from traditional Western paper currencies.
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As Erste Bank's Ronald Stoeferle points out, while interest in gold is gradually growing, we are still "far away" from the mania that typifies the end of a long bull run. That's when prices rocket, forming a vertical line on a chart. Investors should stock up. Stoeferle expects gold to reach $2,000 in 12 months.
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