Even though gold has outperformed other assets in the past one year, analysts have advised caution for gold investors in the short run. However, there is scope for appreciation if investors want to retain the precious metal for a longer period of time, they said. "We are generally bullish on gold in the medium to long term and advise caution in the short run. Gold prices could struggle to maintain momentum above the $950 an ounce level in the short run since exchange-traded fund gold investment holdings are steadily declining and consumer inflation pressures in the major economies are still under control. This means there is very little in the macroeconomic environment to help gold stay above the $950 level," Manqoba Madinane, Commodities Strategist at Standard Bank, told Emirates Business. "Over a six-month horizon we are forecasting average gold prices at $949. With spot gold prices falling to $935 recently, the price is undervalued and should see a correction back to about the $950 level," he said. Despite the recent fall witnessed in commodities, analysts are upbeat on the price of gold in the coming year. "We see a high probability of gold prices above $1,000 towards the third quarter of 2010 when inflation pressures from globally loose/expansionary monetary policies, will start to manifest as global economic growth becomes robust. Therefore, over a six-month to one-year horizon, investors should favour long positions for price levels below $950. Investors should exercise caution if gold rallies above $950 over the six-month to one-year horizon," he said. According to commodities analysts at HSBC, gold should become dearer in the coming months. The bank has increased its gold price prediction for the remainder of 2009, and sees the yellow metal at an average of $925 per ounce, up from a previous estimate of $875. The bank forecasts gold to trade at an average of $950 per ounce in 2010, up from $875 per ounce, and in 2011 it is expected to be $825 per ounce, up from $725 per ounce. This is lower than the predictions of Standard Bank but the bank is bullish on the future of gold prices. Gold had reached close to the $1,000-mark this year, but failed to cross this level. "The influx of gold ETF investment holdings in February this year helped gold climb above $1,000. Gold ETF holdings have since steadily declined with investment holdings by the SPDR Gold Trust ETF [the largest gold-denominated ETF] falling from a record above 1,100 metric tonnes to 1,065 metric tonnes. This has weighed on gold prices," said Madinane. "Furthermore, the influx of scrap metal, especially in Asia, at high gold prices saw the metal struggle to break above the $1,000 level again since breaching it in March. However, we are seeing increasing physical buying pressure, which we believe should be supportive of gold prices." Madinane believes that interest in gold will not dwindle despite all the economic recovery talk. "I believe uncertainty regarding the US dollar and general investor concerns about long-term inflation should still attract institutional investors into gold even with receding crisis talks and improving global economic prognosis," he said. "Rising global economic growth should increase global inflationary pressures, which would attract inflation-hedge investment fund flows into the gold market. The risk premium attached with the uncertainty over the long-term value of dollar-denominated assets should see gold remain well supported by institutional investment fund flows. "Also, retail investor interest in India, the largest gold consumer market, is growing again with a 30 per cent year-to-date increase in Indian gold ETF investment holdings as reported by the country's Association of Mutual Funds. This should support gold prices," he said.

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