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After reaching a (nominal) record price early this month, gold is back in the news, with prices resuming their climb after a mid-month stumble. Risk aversion tied to renewed fears over the euro area is generally cited for the recent spurt.

Taking a longer view, the Economist Intelligence Unit believes that the gold price is now at or near its peak (details can be found at our Global Forecasting Service site: free registration required). The average price is expected to peak this quarter, with an 8% slide forecast for the second half of the year. Monetary tightening and a stronger dollar should push the gold price down further in 2012—in terms of the average annual price, we expect a decline of 12% next year.

Forecasting is a tricky business. The Economist Intelligence Unit’s latest gold forecast was published earlier this week, when markets were nervous about sovereign debt crises but before these fears reached a fever pitch earlier today, briefly sending stockmarkets into freefall before recovering somewhat at the end of the day.

Investors are flocking to perceived safe havens, including both the US dollar and gold. In late trading, gold prices threatened to challenge their previous record above US$1,200/troy oz set late last year (according to the fix provided by the London Bullion Market Association). The EIU expects gold prices to average US$1,150/troy oz in 2010, with prices rising steadily throughout the year. As recent events suggest, the risk to this forecast is likely to the upside.

At odds with the fundamentals, the gold price continues to climb. Setting all-time nominal records after gaining around 30% so far this year, the EIU has upped its forecast for gold in 2010 and 2011. This is despite estimated growth in supply of 11% and a decline in demand of 14% this year. A story at the blog’s parent site explains the revised forecast: “High prices have proven self-reinforcing, encouraging investors to bet on further rises” [subscription required].

The Buttonwood columnist at The Economist argues that recent events around gold fulfil most of the preconditions for a bubble. But unlike the stock market, Buttonwood writes, gold’s lack of earnings or yield make it difficult to judge value relative to historical averages. (For what it’s worth, the current price is only around half of the metal’s inflation-adjusted high, US$2400, set in 1980.)

If some permanent loss of faith in the dollar is possible, gold will remain resilient as investors and central banks diversify their holdings. The spectre of stimulus-fuelled inflation in the US is also supportive of bullion. Mix in some speculative froth, and the gold price seems likely to remain elevated in the coming years. The EIU now anticipates an average gold price of US$1,186 per troy ounce in 2010, up from a previous forecast of US$1,044.

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