Are gold prices nearing end of its 10-year upward trend?

Gold prices experienced dramatic ups and downs in 2011, arousing speculation among upset investors that the ten-year upward trend in gold prices is coming to an end. As the 2012 Chinese Spring Festival comes, will gold prices continue to rise? Industry insiders believe that the fundamentals driving up gold prices remain unchanged, and it is still worth investing in gold.

Factors affecting gold prices

Industry insiders said that shortly after declining from its 2011 high levels, the gold price has started stabilizing, thereby increasing demand for gold as a hedge against risks.

Zhao Xiangbin, chief analyst at the Tianjin Shengbaiya Precious Metals Trading Company, said that first, gold prices dropped up to nearly 21 percent from 1,920 U.S. dollars per ounce at the end of last year to around 1,520 U.S. dollars per ounce at the beginning of this year. After the unusually sharp decline, many investors rushed to snap up the relatively cheap gold. Furthermore, as the demand for physical gold increased substantially in China and India, gold prices quickly started stabilizing and even rebounding. Second, although the improving U.S. economy is supporting the dollar appreciation, the country's modest economic recovery and current geopolitical situation has caused the U.S. dollar to depreciate again. Furthermore, when the U.S. Dollar Index rebounded to around 81.7, large-scale profit taking immediately brought the dollar under great downward pressure, while gold and other currencies continued their upward trend. Third, the recent rebound in gold prices is partly attributed to the global geopolitical turmoil. The Iranian nuclear issue and turmoil in key crude oil producers have posed a major threat to the fragile global economic recovery, so the demand for gold has naturally increased. Fourth, the world's largest gold exchange-traded fund (ETF) only slightly reduced its gold holdings, providing a foundation for the increase in gold prices. Fifth, as the Chinese Spring Festival is approaching, gold demand has increased sharply in the country, which has further driven up gold prices.

"In a word, there are still many strong factors supporting the gold price, and the gold price will have a trend of fluctuating and going up in the beginning of 2012," said Zhao.