Why gold will go to $2,000 an ounce - with or without QE3

There are four very good reasons why the price of gold will hit $2,000 an ounce and more. Whether we get a third round of quantative easing or not.

If there is no QE3 (quantitative easing 3 more money printing), will the price of gold collapse along withevery 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.

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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.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.