More inflation is good for gold, but raising key interest rates, the way to combat inflation is bad for the metal. As the cost of borrowing increases and paper currencies get stronger, gold becomes less appealing. But so far rates have not been hiked high enough to damage gold prices, or in China's case, not at all.
Most analysts are looking towards 2011 to provide real direction for the gold price. Historically January and February are good months for gold as investors buy back positions they shed ahead of the new year.
This thesis didn't pan out in 2010, but many think it will play out in 2011. "The two pillars of gold are, in any country's currency, are negative real interest rates and deficit spending," says Frank Holmes, CEO of U.S. Global Investors.
Holmes thinks that low interest rates won't be going anywhere anytime soon as "it would be catastrophic for the financial system."
Low rates and cheap money can also be good for
as well, a cheaper alternative to gold. Silver closed flat at $29.38 while copper also ended flat at $4.27 after the metal hit record highs Tuesday as it was reported by the
Wall Street Journal
that one trader owns 80% to 90% of the copper at the London Metal Exchange.
Gold mining stocks
, a risky but potentially profitable way to
, were slightly lower.
Freeport McMoRan Copper & Gold
(FCX - Get Report)
was losing 0.15% at $116.03 while
(KGC - Get Report)
was 0.22% lower at $18.39. Other gold stocks
(NGD - Get Report)
(GFI - Get Report)
were trading at $9.21 and $17.49, respectively.
(GS - Get Report)
(GOLD - Get Report)
Wednesday from its Conviction Sell List, but still maintained a sell rating. Shares were slightly higher at $84.96.
Written by Alix Steel in
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