Bank Credit Analyst Sees Gold Bull Market Continuing This Year

According to a report from Mineweb, the Bank Credit Analyst report says that unusually low interest rates and the potential inflationary pressure of trillion-dollar deficits in the U.S. will add to pressure pushing gold upwards in 2011.

The gold bull market, BCA Research argues, "has been driven by the potential inflationary implications of current large fiscal deficits and central banks that are prepared to stop at nothing to prevent deflation.

"It may be several years before developed-world real interest rates return to the norms of earlier decades, especially in the US. In this environment, gold will continue to be an excellent insurance policy and should continue to fare well when measured against the major currencies".

Short-term interest rates in the developed world are at historic lows - below 1%, for instance, in the US, Japan, Britain and Canada, and just above 1% across the Eurozone....

The BCA also notes that there's a lot of room to expland gold demand.

BCA Research argues that it is hard to make the case that gold is currently "a crowded trade". Many institutional and retail investors agree with the gold bull case but have been slow to act, argues BCA Research, "even as their faith in conventional stocks and bonds has ebbed. Indeed, based on investor meetings and anecdotal evidence, we estimate that the average portfolio allocation to gold is around 1%.

"This suggests that there is plenty of pent-up demand which could still flow into gold and related shares. True, the gold bull market will proceed in installments, not a straight line. It would not be a surprise to see gold suffer occasional selloffs of perhaps a few hundred dollars at a time during 2011.

"We would broadly view these selloffs as opportunities to boost core holdings. The bottom line is that gold is a potential mania candidate and expect good returns in this metal in 2011".

Given how gold's performed without CPI-measured inflation going to the moon, all it would take would be a serious inflation spike to make gold go to the moon.