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Inflation or Not, Gold Will Still Break $2,000: Analyst

Monday, 4 Feb 2013 | 6:23 AM ET

The price of gold may have stalled in recent weeks with fears that loose monetary policy at the Federal Reserve could come to an end, but one analyst told CNBC that the precious metal is set for a good rally this year regardless of whether inflation occurs or not.

Photo: Tom Grill | Image Bank | Getty Images

"Everyone is always bearish at the lows, that's the time to buy it, we're going to get a good rally this year I think," Harry Colvin director and senior economist at Longview Economics told CNBC Monday.

Gold - considered a hedge against inflation - has rallied 400 percent over the last decade and was up 9 percent year-to-date until the Fed's December 12 meeting.

The Federal Reserve announced its latest QE (quantitative easing) program at this December meeting, bringing the total to $85 billion a month.

This extra liquidity has been a boost for gold in the past, but failed to excite investors this time, with concerns that the Fed's asset buybacks could come to an end. Spot gold's price has since fallen 2.5 percent.

(Read More: Gold Mega-Rally Hangs in Balance After Fed Decision)

"To get back into a bull market on gold we need inflation. All investors worldwide are very worried about inflation but today we don't have inflation," Bob Parker, senior advisor at Credit Suisse, told CNBC Monday.

The announcement of bank recapitalization plans and European Central Bank repayments also decreased the risk in the sector, Parker said, and was not helping gold.

Now's the Time to Buy Gold: Economist
Harry Colvin, director and senior economist at Longview Economics, tells CNBC that everyone is always bearish on Gold at the lows and that's the time to buy it.

"We don't need inflation pressures for a gold price rally. We haven't had inflationary pressures in recent years. The only inflationary pressures we have is from QE pushing commodity prices up," Colvin responded.

(Read More: Gold Can Still Break Through $2,000: Analysts)

"Gold's gone sideways for sixteen months, that's because the balance sheet in the Fed has gone sideways for the last sixteen months. The balance sheet is about to expand rapidly. And with that we're going to get a rally in the gold price, it's going to go hard this year and probably into the next."

Colvin said that the price would rise between $300-400 this year and would break through the $2,000 mark.

By CNBC.com's Matt Clinch

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