Four factors that will drive Gold in 3-6 months

There are at least four factors that would affect gold prices in the coming 3-6 months:

--OPEC quota expansion

--Outcome of Euro zone debt crisis

--Outcome of US debt ceiling debate

--Japanese recession

As the crude oil prices are going up, people are reducing consumption of petroleum and switching over to mass transport systems. This has rung alarm bells in OPEC head quarters and may prompt the cartel to ramp up production which would have a telling effect on gold prices!

Here is the economics: Gold is a hedge against inflation. When the oil prices come down, inflation also comes down prompting investors to ‘de-hedge’ on gold. This would weigh on the price of gold.

Tuesday, certain newspaper reports quoting a major study indicated that with the surge in petrol prices (not to speak of another hike in cards in India for the next month), 30% of the population at a major city in the State of Kerala in India has opted for public transport systems. Events like these can go viral very easily and has even spurt investments in hybrid technology.

This is not good for OPEC in the long-term and they are likely to hike production to cool prices. A decision in this regard is expected in their June meeting; subsequently gold could fall.

Another factor that would affect gold prices is euro-zone debt crisis.

The crisis is snowballing into a major event and if not handled with dexterity can undermine the progress achieved as yet. Prospect of a Greek default is invariably feared by many, the core and the periphery countries.

It would take a Herculean effort to address the crisis and resolve it with least repercussions and negligible spill-over effects. With the second bailout plan (the first one failing) being drafted as of now, uncertainty is mounting and gold prices would sway based on the outcome.

An element that can add uncertainty further to the global markets is the fear of US defaulting on its debt.

A reconciliation evading the Republicans and Democrats on the debt-ceiling issue, coupled with weakening US dollar, gold prices would move accordingly.

Following the devastating earthquake and tsunami, Japan economy entered recession.

This effect can considerably weaken the Japanese electronics industry that consumes a significant portion of global gold production and thereby gold’s prices.

The Japanese electronics output is down by 10% Y-O-Y for the first quarter of 2011, says a World Gold Council Report.

As published in: http://www.commodityonline.com/news/Four-factors-that-will-drive-Gold-in-3-6-months-39504-3-1.html