Martin Murenbeeld, chief economist at DundeeWealth, says a double-dip recession won't be good for gold prices, but when policymakers react quickly -- which he says they have done in the U.S. -- then the downturn in gold prices is short.
"We saw this in 2008 when the gold price went down for most of the year but then turned up in late 2008 and year over year the gold price continued to rise," Murenbeeld says.
Murenbeeld sees many catalysts for higher gold prices, but the biggest one is money printing. "Liquidity drives gold," he says.Murenbeeld acknowledges that a large amount of the Federal Reserve's stimulus stays in excess reserves and argues that money printing in emerging-market nations like China is, in fact, more supportive of gold prices. "Chinese money supply is 1.5 times larger than the U.S. money supply," he says.
Paul Walker, global head of precious metals at GFMS, a research consultancy recently purchased by Thomson Reuters, says strong demand in India supports higher gold prices. Walker says that during a recent trip to India he couldn't get into gold stores in some regions because there were so many customers inside eager to buy the metal. The expert says that India continues to buy on price dips and that there is a lack of scrap gold coming out of the country -- a sign of hoarding. India "can suck in huge amounts of gold in a very short amount of time," he says, estimating that India could import more than 1,000 tons of gold in 2011 -- "a record level at record high prices." For comparison, SPDR Gold Shares (GLD) holds 1,251 tons. Walker also sees bar hoarding and strong coin demand in China as inflation remains high, interest rates remain negative and investors look for a safe place to invest. He argues that jewelry demand from China and India is actually investment demand. It is less about buying a gold bracelet for a loved one and more about where to stash cash and how to generate the best returns. "The market is moving in relatively unchartered territory," he says.