When gold goes down — as it did in mid-December — some established Wall Street firms tend to downgrade their gold price forecasts. These institutions often aren’t independent thinkers at all. They tend to act with a “mob mentality,” following and believing their friends in other financial shops on the street. They merely extrapolate current trends into the future. In other words, if gold is weak, it will stay weak!

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For instance, Goldman Sachs cut its 2013 gold forecasts late last month. Goldman Sachs cut its three-month gold forecast to $1,825, its six-month (June 30) forecast to $1,805 and its 12-month forecast to just $1,800.

Goldman Sachs also issued a 2014 forecast of $1,750. In other words, a slow retreat, quarter by quarter. Their reasoning, in brief, was: “Our expanded modeling suggests that the improving U.S. growth outlook will outweigh further Fed balance sheet expansion and that the cycle in gold prices will likely turn in 2013.”

But gold prices seldom rise or fall in such predictable baby steps. In 2013, gold will likely continue its 12-year pattern of two steps up, one step back. The British-based Capital Economics has a better handle on that process than Goldman Sachs does. Capital Economics sees a rise in gold to at least $2,000 in 2013, peaking at over $2,200 in the second half of 2013, a 10 percent increase over their previous forecast of $2,000.

Post-Election Politics and Global Demand Point to Higher Gold

The fiscal cliff is just one example of how our government works — raising taxes on workers and the rich, while delaying any spending cuts for at least two months. The political situation in Washington is ripe for a gold price resurgence — easy money at the Fed, rising deficits on Capitol Hill and near-zero interest rates at banks. All these factors will push investors to consider the value of gold over cash, stocks or bonds.

In addition, amazingly enough, gold usually rises during the first year of the four-year presidential cycle. Frank Holmes has shown that the Philadelphia gold and silver index (XAU) has historically risen 23.4 percent, on average, during the seven post-election years since 1985. This trend should continue in 2013, given the political realities on display every day in Washington.

The same kind of incompetence you see today will exist for at least four more years. Gold was $729 per ounce the day before President Barack Obama was elected in 2008. The day after he was re-elected in 2012, gold closed at $1,715, for a 135 percent increase in his first term as president. If we see a similar 135 percent rise in his next four years, gold will trade at over $4,000 per ounce in November 2016, unless our elected politicians suddenly grow some stiff backbones.

A second pillar under gold’s price in 2013 is rising global demand. As former third-world (now called emerging markets) nations become rapidly richer, their people will continue to buy gold for their personal savings or as jewelry for their loved ones. In addition, central banks are buying more gold. In November, Russia bought 3 tons and Brazil bought almost 15 tons.

Further, Iraq (a new gold buyer) bought 25 tons from August through October. Iraq’s previous gold purchase was in the early 2000s, before the U.S. coalition invasion of Iraq in April 2003, so a new buyer, like Iraq, on the global scene should lift gold.

Moreover, industrial economies (led by China) are bidding up the base metals for industrial purposes. Optimism is building that China can return to double-digit growth in 2013. This will fuel demand for precious metals as well as base metals, since rising prosperity in China fuels consumer and central bank demand for gold.

In conclusion, gold investors look destined to have a Happy New Year in 2013.

Moody’s and Gold

In August, 2011, Standard & Poor’s downgraded U.S. debt a notch, sending the stock market into a tail spin and pushing gold up to $1,900 by early September. In September 2012, Moody’s warned that it would probably downgrade America’s credit rating if there was no improvement in the outlook for budget deficits.

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Meanwhile, Fitch Ratings, issued a similar warning in November. On New Year’s Day, Washington jumped “halfway” off the cliff by waiting until the last moment to address tax rates and doing nothing about spending. In response, Moody’s said it still has a “negative outlook” on its ratings of U.S. debt, since there has been no “meaningful improvement” on the spending side. This seems good for gold.

About the Author: Mike Fuljenz
Mike Fuljenz is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of the NLG award winning Michael Fuljenz Metals Market Weekly Report. Discover more by Clicking Here Now.