Outlook for gold prices is bullish in 2012

What is it with gold? Spot gold prices soared to a record above $1,900 an ounce in early September, dipped below $1,600 late in the month, rebounded strongly, and then fell below $1,600 again last week. That's a 16 percent decline in three months, although the shiny metal is still up for the year. Will the decline continue into 2012?

It could. Concerns about the euro debt crisis have sent investors scrambling to buy dollars as a haven from risk, rather than gold, which has caused the dollar price of gold to fall. When gold prices fell below their 200-day average last week, a technical sell signal, prices broke below $1,600 although they have recovered a little since then.

"What is surprising is that in an environment where headline risk news is bigger than ever, gold has actually fallen from its highs," Christoph Eibl, CEO and founding partner of the Swiss commodity hedge fund Tiberius, told Reuters.

With the euro debt crisis virtually certain to extend into the new year and the US economy still weak, keeping inflation tame, many analysts see gold prices could fall further. Yet, they do not anticipate any precipitous fall since gold serves as a kind of ballast to market volatility and as a store of value.

Looking further into 2012, many analysts are bullish on the precious metal. 

For technical buyers, the signal could come early, if gold can break above its 200-day average of about $1620 an ounce.

“I think gold investors could be lurking in the wings if we get a good move back above [there],” Ole Hansen, an analyst from Saxo Bank, told Reuters.  

For long-term investors, real gains could come in the fall.

What gold's decline since March "has really shown us is that in periods of extreme risk aversion, gold is not unscathed," Soozhana Choi, a commodities analyst at Deutsche Bank, told CNBC Monday. "We find that gold trades lower across the board with every other financial asset out there."

But "we do believe that over the course of the next year, we will see a recovery in gold prices," she added. Deutsche Bank forecasts that gold prices will hit $2,000 an ounce in the second half of 2012.

On Tuesday, Scotia Capital also raised its outlook for gold next year and now expects it to hit $1,750 an ounce.

"Although investors are currently not focused on an inflationary environment, longer term we believe with the amount of stimulus injected globally and higher inflation expectations will continue to support investment demand in gold," said Tanya Jakusconek, an analyst for the unit of Canada's Scotiabank Group.