Can gold climb without QE?

At the end of this month, the US Federal Reserve's second bout of quantitative easing (QE2), or money printing, comes to an end. It will have bought $600bn of US Treasury securities with newly-created money over a period of eight months.

All this extra liquidity has been good news for most assets and has helped gold by fuelling fears of future inflation. However, the US economy may have to take a dramatic turn for the worse before any more money printing (QE3) takes place. Without QE3, will gold, which recently hit new records in dollars, euros and pounds, hit the skids?

In a word, no. All governments will have to maintain loose monetary policy, "given how slow or how stubborn the rise in GDP growth has been and continues to be", says Philip Newman of precious metals consultancy GFMS. Fears of inflation are hardly likely to recede as inflation-adjusted interest rates across the developed world are negative.

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Negative real rates also mean that investors aren't missing out on a better return from other traditional safe-haven assets (such as bonds) by holding gold. "The opportunity cost of holding gold should remain subdued," says Capital Economics.

Note too that jitters over the eurozone, with a potentially messy break-up of the single currency area a real possibility, are unlikely to recede soon. While the euro could fall apart, the other two major currencies, the dollar and sterling, have both been debased by money printing.

Investors have been reminded that "we cannot trust our politicians to maintain the value of paper money", while gold is a safe currency and store of value, says Tim Price of PFP Wealth Management. "To retain true purchasing power we need to hold gold."

Another reason to expect gold's decade-long bull run to continue is that central banks, having sold gold for three decades, are now net buyers. Emerging markets' central banks have relatively few of their assets in gold and are likely to diversify further.

Those in Mexico, Russia and Thailand all made major purchases recently. Now add Chinese investors' growing interest in gold as more investment vehicles are made available to them, says Capital Economics, and gold should hit $2,000 an ounce. That's regardless of whether we get QE3 or not.