Gold prices have managed to harvest its 11th consecutive year of growth with a drastic surge followed by a deep correction in 2011.
On Friday, the last trading day of the New York Mercantile Exchange, benchmark gold contract for February delivery rose 25.9 U.S. dollars and closed at 1,566.8 dollars an ounce, up 1.7 percent.
For the year, gold prices have risen by 145.4 dollars an ounce, or up 10.2 percent. But after the deep correction near the end of the year, growth in prices is much lower than the 29.7 percent recorded in 2010.
PRICES APPROACH 2,000 DOLLARS AN ONCE
At the beginning of 2011, gold prices rose steadily, carrying on the momentum of the bull market in 2010.
Later on, as the political turmoil in some Middle East and North African countries continued, investors flocked to safe-haven assets like gold.
As oil prices surged too, investors were also buying up gold as a hedge against inflation.
The escalating sovereign debt crisis in Europe also reinforced risk-aversion among investors.
Since July, investors have been increasingly worried about a potentially devastating default by the U.S. federal government on its debt as politicians in Washington were engaged in bitter partisan fight over raising the country's borrowing limit.
In early August, Standard & Poor's, one of the three global ratings agencies, stripped the United States of its top-notch rating, citing mounting federal fiscal deficits and political inaction in Washington to put its messy fiscal house back into order.
The U.S. government debt has long played a fundamental role in the global financial system. A default could cause unprecedented financial turmoil.
As people were doubting the credit-worthiness of Uncle Sam, more and more investors rushed to gold, pushing prices over 1,400, 1,500 and 1,600 dollars an ounce.
Moreover, as the U.S. economic growth spluttered, investors were seeing the Federal Reserve as more likely to launch the third Quantitative Easing Policy, dubbed QE3, to jumpstart the stalled economy.
The QE3, effectively a money-printing operation that will push up inflation sooner or later, benefited the gold market.
Such strong stimuli pushed the risk-aversion tendency in the market to the peak. Various funds poured into the gold market, pushing the gold prices over 1,700 and 1,800 dollars an ounce in August. At that moment, 1,900 dollars an ounce seemed close at hand.
Investment banking institutions, like Goldman Sachs and Citibank, released reports to forecast a higher gold price in the future.
J.P. Morgen Chase & Co. made an even bolder prediction in early August that the gold price would reach 2,500 dollars an ounce by the end of 2011.
PRICES STOP AT 1,900 DOLLARS AN ONCE
Gold prices climbed to a record of 1923.70 dollars an ounce on Sept. 6 but did not stay there for long. After several times of fluctuations, gold prices plunged by as much as 200 dollars in the next four days since Sept. 21.
On Sept. 23, gold prices dropped by 101.9 dollars, 5.9 percent, the biggest one-day drop over the last five years.
Gold prices closed below 1,600 dollars an ounce on Sept. 26, hitting a record low since July 8.
Although gold prices rebounded afterward, the depressed sentiment has overshadowed the market till the end of this year.
Mike Daly, a senior gold analyst of U.S financial group PFG Best, said the slump was caused by the overheated market anticipations for gold prices and the deepening European debt crisis, which drove prices of commodities and stocks lower, prompting investors to dump gold to cover losses in other markets.
BULL MARKET ENDED?
Investors worried that the 11th consecutive rise in gold prices might end next year.
Daly said the chance of the gold prices going up is much bigger than going down in the future. The gold price would hit a record high again in the first half of next year, reaching at least 2,100 dollars an ounce.
Though there is too much uncertainty in the future, gold is still a safe asset in the volatile market, he said.
Fabio Fois, a European economist from Barclays Capital, predicted that gold prices would reach 2,000 U.S. an ounce in 2012.
He said the demand for gold reserve by the central banks of countries like China and India would be a strong support for gold price.
However, Ira Epstein from American Linn Group said the gold has lost its attraction to investors unless the global inflation emerges again, which seemed quite impossible in the short term.