Traders are primarily focused on Greece and concerns over upcoming elections, which could ultimately determine whether the country exits the euro zone. Worries about the solvency of Greek banks are adding to investor fears, while IMF chief Christine Lagarde warned of “extremely expensive” consequences if Greece were to leave the euro zone,

Hopes of additional monetary easing in the U.S. are also providing support for precious metals Thursday. Minutes from Federal Reserve’s latest policy meeting showed top officials are concerned with how contagion from Greece and coming tax increases and spending cuts in the U.S. could weigh on the recovery. Fed members debated whether the central bank should provide additional stimulus to spur consumer spending.

“Several members indicated that additional monetary policy accommodation could be necessary if the economic recovery lost momentum or the downside risks to the forecast became great enough,” the minutes said.

Gold demand in China, which rose to a record in the first quarter of 2012, may surge as much as 30% this year, according to the World Gold Council. Rising incomes are expected to spur strong demand, putting the country on track to surpass India as the world’s largest consumer of bullion.

“We are confident China will become the largest source of demand for gold this year,” Albert Cheng, Far East managing director at the WGC said in an interview. “Over the next two to five years, China and India will go neck to neck and may account for more than 50 percent of world demand.”

Bullion has gained on an annual basis for 11 years as investors bought the metal to protect their wealth from currency debasement and inflation. Based on the current fundamentals, analysts predict gold could continue to gain in 2012 and rally through the end of the year.

In a report dated May 9, Goldman Sachs Group, Inc. said the precious metal remains the “currency of last resort.”

Traders’ attention is now focused on key meetings scheduled in Athens today, where leaders are set to discuss the formation of a caretaker government. U.K. inflation data is also in focus, which will likely set the tone for further monetary policy from the European Central Bank.

Precious metals have struggled to break free from a downward trend in recent weeks. Gold closed at a four and a half month low in the previous session after political leaders in Greece abandoned efforts to form a coalition government and called for new elections – a move that analysts say heightens the risk of a Greek default, which would ultimately force the country to exit from the euro zone.

Greece’s president added to investor concerns on Wednesday, citing “fear that could develop into panic” at the country’s banks prior to new elections. Evidence has emerged of locals pulling their euro funds out of banks for fear of their country’s exit from the currency bloc.
Precious metals remain vulnerable to further consolidation in the short-term, but several predictions for gold prices to rally in the coming months have emerged from a number of key analysts in recent weeks.

Analysts for Morgan Stanley said Tuesday that the recent selloff is “consistent with distressed selling and long liquidation”, but prices would recover in coming weeks. In addition, Hussein Allidina, the head of commodity research at Morgan Stanley in New York, wrote in a report dated May 14 that the European Central Bank will be forced to pump more money into the euro region in response to the debt crisis, reviving the appeal of gold.

Goldman Sachs is also calling for precious metals to rally, saying the Federal Reserve is likely to announce a third round of stimulus measures in June, according to a report from May 9.

In another positive for gold traders, a regulatory filing released Tuesday showed billionaire fund manager John Paulson held on to his stake in the world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, in the first quarter of this year.

Meanwhile, record-low interest rates from the U.S. to Europe may also increase demand for gold, according to analysts. The Fed has pledged to keep rates at “exceptionally low levels” at least through late 2014. Further, central banks are buying bullion at the fastest pace in five decades, adding 439.7 tons in 2011, according to data. London-based World Gold Council estimates central banks will buy a similar amount this year.

Only about five percent of Americans own gold. At least that’s the number according to recent estimates by the US Gold Bureau. This is an incredibly small percentage compared to real estate or stocks ownership numbers, which most analysts believe to be upwards of 50%. This fact in and of itself shouldn’t surprise us as gold has really only come into the limelight in the last few years. Back when it was $300 per ounce, you couldn’t give the stuff away. When it hit $1900, demand had never been higher. There’s one fact however that is truly alarming considering the very low percentage of the population that owns gold: it is actually perceived as the best investment available today.

For the second year in a row, more Americans chose gold as “the best long-term investment” than any other asset class. Twice now, Gallop surveys have found that American’s generally believe gold to be a better long-term investment than real estate, stocks, bonds, mutual funds and even savings accounts and CDs. In fact, the results are not even close. Of the respondents recently surveyed, 28% picked gold as the best investment placing it miles ahead of real estate, which came in second at only 20%.

So what does this mean for the future of gold demand and prices? For decades now, real estate has been the cornerstone of personal wealth in this country. Undying demand helped drive and support high prices year after year. Now we find ourselves in a situation in which only 20% of Americans believe real estate is the place to be while more than twice as many actually own property.

Let’s compare that to gold. If only five percent of Americans own the stuff while nearly six times that many believe it to be the best investment, there is very little argument to be made that we won’t continue to see massive investment inflows into the gold market in the coming years. It’s simple math.

Though gold has had a rough few months we can’t forget one simple fact: it’s taken the better part of a decade to change Americans’ perceptions of the importance of gold. That change is not going to disappear overnight. Placing a long-term bet against real estate 20 years ago would have been a dangerous game, in part because of the power of public perceptions. Likewise, betting against what is now the best long-term investment as perceived by the American public may be equally unwise. Take a look for yourself: The numbers don’t lie.

April 9-12th 2012 – Gallup Pole
“Which of the following do you think is the best long-term investment?”

Gold 28%
Real Estate 20%
Stocks/Mutual Funds 19%
Savings Accounts/CDs 19%
Bonds 8%
Other/No Opinion 6%

Mike Getlin is Executive Vice President of Merit Financial, home to America’s fastest growing physical gold IRA company. Please send comments or questions to meritprofiles@gmail.com.

Nine days after an inconclusive election, divided party leaders in Greece refused to agree on a proposal by President Karolos Papoulias for a government of non-politicians to help steer the country away from bankruptcy. If the political stalemate in Greece continues, Papoulias will call for a new election in June.

Greece has to agree to more than 11 billion euros in additional austerity cuts in order to meet targets in the bailout plan, and the political gridlock has now prompted euro zone officials to publicly acknowledge the increasingly likelihood of a Greek exit from the euro.

In other news, World Gold Council chief executive Aram Shishmanian said on Monday that sharp increases in mining costs mean that in order for the industry to remain profitable, gold will need to reach $3,000 an ounce in the next five years. According to Shishmanian, miners currently need a gold price of just $1,300 to survive, but said he was optimistic that sustained demand would continue to drive prices higher over the long term.

“Emerging markets are going to hold increasing amounts of gold reserves,” Shishmanian said. “Holding billions of dollars doesn’t help them. The alternative potentially is gold.”

Shishmanian also cited the emergence of gold-backed ETFs as a key driver for higher prices.

“This is the tip of the iceberg,” he said. “U.S. pension funds do not hold substantial amounts of gold but we see that changing over the next 20 years.”

Euro zone fears escalated this weekend after talks between potential coalition partners on setting up a new government in Greece collapsed on Sunday, raising the probability of new elections, and prompting euro zone officials to weigh the consequences of a possible Greek exit from the single currency.

“We’re really getting to a denouement,” Michael O’Sullivan, head of portfolio strategy at Credit Suisse Private Banking, said in an interview with Bloomberg Television. “We’re getting to the part where a decision has to be made” on whether Greece leaves the 17-nation currency union.”

German Finance Minister Wolfgang Schaeuble urged the Greek government to stay within the monetary union, warning that a departure would trigger a crippling devaluation.

Meanwhile, yields leapt on government bonds in both Spain and Italy, further contributing to nervousness over Europe.

The latest move by China to further loosen monetary policy was also weighing on investor sentiment on Monday. The People’s Bank of China cut the amount of cash that banks must hold as reserves on Saturday, providing an additional 400 billion yuan for lending as the government continues to pursue a pro-growth policy stance. Analysts note that the move underscores how the problems of Europe are hampering global growth.

Here in the U.S., PIMCO’s Bill Gross took to his firm’s Twitter account last Friday, saying a third round of quantitative easing is likely to be announced by the Federal Reserve before the end of the year. According to Gross, “Risk markets need more ammo if they are to stay up. QE3 getting closer.”

The Fed’s next FOMC meeting takes place on June 19th and 20th. “Operation Twist” is set to expire on June 30th.

German Bund futures pushed higher, while peripheral euro zone government bonds came under pressure as Greece made a last-ditch attempt to mend its government. Meanwhile, the government of Spain announced Friday it is set to unveil plans to clean up its banking sector.

Also adding to investor uncertainty, JP Morgan announced that it suffered a $2 billion trading loss on credit derivatives, and that the loss could get worse this quarter and beyond.

In an exclusive interview with the Financial Times, economist and strategist David Rosenberg said gold may go to $3,000 per ounce before this cycle is over, saying it is not about being bullish or bearish, it is about “stating how you view the world. He warned that the major central banks are all going to print more money and keep real interest rates negative “as far as the eye can see.”

Rosenberg sees gold as a currency and says the best way to value gold is in terms of money supply and currency in circulation.

As the “volume of dollars is going up as we get more quantitative easing,” said Rosenberg, who sees further monetary easing as the primary driver that will send gold to $3,000 per ounce.

Rosenberg sees a very good opportunity in gold at the moment, as it has corrected and seems to be off the radar screen right now.

Gold has taken a bit of a beating over the last six months. Since late 2011, concerns about the future of the euro have combined with a relatively stable US economy to send the dollar sailing sky high. As a result, gold has seen a lack of investment interest as it has essentially become a risk-on asset. Until gold resumes its role as a hedge against risk and starts moving opposite equity markets, it’s unlikely to break free of the broad trading range between $1500 and $1750.

What’s so strange about the current market situation is that gold should, by all logical measures, be acting as a risk hedge. After all, it has done so for thousands of years. It’s really only broken that traditional pattern for the last several months. The rampant manipulation of the bond and currency markets on the part of the Fed has turned naturally functioning free markets on their heads. Investors’ addictive lust for quantitative easing has created a paradigm in which all markets essentially move together, and opposite the dollar. When we think they’ll ease, everything goes up. When we think they won’t, everything falls.

Over the long haul this model is not sustainable. Unless the Fed wants to keep the market on life support forever, they will eventually have to back away from the controls and let the markets correct themselves. To an extent, this is already happening, as the language coming out of the Fed’s Open Markets Committee meetings has been less and less aggressive over time. Now we have to ask what’s on the horizon that could significantly change the current market paradigm. Unfortunately, we don’t have to look too far.

As it stands now, our economy is hurling toward a fiscal cliff that we will reach on January 1st 2013. “Taxmageddon” as it’s being called is a combination of massive tax increases (over $450 billion) and deep, across-the-board spending cuts that will automatically occur on the first day of next year unless Congress is able to reach an agreement to avoid the disaster. A tax increase/spending cut combination of this magnitude has only occurred one time in post war America and it sent the economy into instant recession in early 1970.

This doomsday scenario is nothing new. We saw a very similar dynamic in the lead up to the debt ceiling deadline last year. The seemingly innocuous discussion about raising the debt ceiling essentially turned Congress into pro wrestling show full of ridiculous threats and wind-bag rhetoric. What happened? They kicked the can down the road another year (again), set the stage for an even bigger showdown, and drove gold up by hundreds of dollars an ounce in the process.

You see, the world has temporarily forgotten how dysfunctional our legislature truly is. At the moment, we are all enamored with Europe’s spectacular demise and we’ve forgotten that the real future of the dollar will depend on what happens here in the fall. The cold hard reality of US deficits and political gridlock may be hibernating at the moment, but believe me, it’s not dead. There’s nothing like war in the halls of Congress to point out how unstable the dollar truly is. There is nothing like an unstable dollar to move gold prices. As such, a bet against gold in the long run is essentially a bet that the boys and girls on Capitol Hill will suddenly learn to play nice. Is that a bet you would take?

Mike Getlin is Executive Vice President of Merit Financial, home to America’s fastest growing physical gold IRA company. Please send comments or questions to meritprofiles@gmail.com.

The current political disarray in Greece had fueled speculation on Wednesday that the country might not receive its next round of bailout funds, and while investors bought gold as a haven from euro zone risk in 2011, the metal has recently been trading more as a risk asset than safe haven. Conversely, the U.S. dollar has benefited greatly from safe-haven demand in recent weeks, and the strength of the greenback has been a key factor in this week’s 3% correction in gold prices.

While progress in both Spain and Greece is helping to take some pressure off of markets today, uncertainty over the long-term debt problems of the euro zone is the predominant factor that will influence gold prices in the coming months.

The situation in Europe could very well deteriorate following forthcoming elections in several EU countries, which analysts say could ultimately turn out to be referendums on continuing to provide aid to the debt-laden members of the euro zone. Experts say even if countries pursue austerity measures on their own, the threat of worldwide debt contagion is still likely.

The aforementioned concerns and the expectation of a third round of stimulus from the U.S. central bank led Goldman Sachs to affirm their six-month forecast for gold, calling for prices to hit $1,840 an ounce. Calling gold the currency of last resort, “The case for higher gold prices remains in place,” the analysts wrote.

“U.S. economic and employment data has now disappointed for several weeks, European election results point to further stress in the euro area, while anecdotal data suggests that physical gold demand remains resilient.”

Jan Hatzius, chief economist at New York-based Goldman, predicted in a report dated May 8 that the U.S. Federal Reserve will announce another round of quantitative easing when policy makers meet next month.

Hatzius’ expectation for additional easing from the Federal Reserve echoes that of Pimco’s Bill Gross. Gross took to his Twitter account last week, telling investors a decision to buy more debt is “getting closer.”

Meanwhile, the euro dropped to a 15-week low against the dollar as concerns about the political climate in Greece intensified.

The leader of Greece’s left-wing Syriza bloc, Alexis Tsipras, is attempting to form a government based on ripping up terms of the European Union/International Monetary Fund bailout deal. According to reports, Antonis Samaras of New Democracy and Evangelos Venizelos, the former finance minister who leads Pasok, rejected an ultimatum from Tsipras to send a letter to the European Union revoking their written pledges to implement austerity measures.

Another election may be held in mid-June if politicians fail to form a governing coalition.

Analysts at Sharps Pixley said in their latest note that a new election is likely and that there is a ”distinct possibility of Greece defaulting and exiting the euro, which will have contagion on Spain, Portugal, Italy, etc.”

Concerning gold, the analysts said investors are currently overreacting to bad news and ignoring bullish fundamentals such as improving physical demand from India and increased demand in China.

“The weakness in the paper gold market may continue due to technical selling or investor fatigue…but this weakness is masking the massive activities going on in the physical gold market, especially among central banks who may be happy at a lower purchase price,” said the analysts.

In Spain, meanwhile, new worries about the resilience of the banking sector further added to investor concerns.

Madrid will reportedly demand that Spanish banks set aside another 35 billion euros against loans to builders, as the country attempts to rebuild confidence in a sector that has been plagued by huge losses, which fueled speculation that the country may eventually need an international bailout.

Speaking to CNBC in Las Vegas on Tuesday, noted market bear Nouriel Roubini called the ongoing political turmoil in Europe “a slow motion train wreck,” and said he expects Greece to leave the euro zone by next year.

Roubini, who warned last year that a perfect storm was coming for the global economy in 2013, said the euro zone will “eventually break up,” and expects two or three euro zone members to exit the bloc over the next few years.

According to reports, Tsipras said he would not agree to join forces with New Democracy and Pasok, the two Greek parties that have supported austerity measures in return for international funds. Further, Tsipras said a left coalition government would nationalize banks to spur growth, repeal recent labor reforms and immediately cancel the bailout accords.

Meanwhile, data showing a sharp increase of gold imports to China helped reinforce expectations that the country will soon surpass India as the world’s top consumer of gold. According to data, imports of gold from Hong Kong to Mainland China in March surged nearly 59% from the previous month.

“Rising prosperity levels among the population coupled with tighter laws governing property speculation are likely to contribute to sustained high demand for gold in China,” Commerzbank analysts said in a note.

“Above all, Chinese gold demand should lend key support to the price of gold during the course of the year.”

HSBC analyst James Steel concurred, saying China’s strong demand for bullion may help support gold at lower levels, while a recovery in Indian gold demand would also underpin prices.

Indian Finance Minister Pranab Mukherjee said Monday he was withdrawing an excise tax on precious-metal jewelry, boosting prospects for the country’s gold demand this year.