The price of gold is currently at $1656 an ounce. Predictions from Goldman Sachs analysts say the price will rise to $1785 within the next 3 months and up to $1840 by the end of 6 months. After a year, these experts say gold will then be at $1940 an ounce or higher. As stated in a letter put forth, the Goldman Sachs analysts said, “At current price levels gold remains a compelling trade but not a long-term investment.”

They emphasize that it’s the state of American interest rates that are the most important determinant of the price of gold. However, there is a current discrepancy between interest rates and the price of gold. This is due to “Operation Twist” which is the Federal Reserve’s implemented plan to purchase a significant amount of long term Treasuries and selling short term ones to help balance the U.S. market.

The Goldman Sachs analysts say, “We believe that despite last fall’s decline in 10-year TIPS yields, the gold market may have been expecting that real rates would soon be rising along with better economic growth, leading to a sharp decline in net speculative length in gold futures.”

They went on to say, “Our U.S. economists expect subdued growth and further easing by the Fed in 2012, which should push the market’s expectations of real rates back down near 0 basis points and gold prices back to our 6 month forecast.”

Many in the finance industry believe that the price of gold has already peaked with last year’s high of $1,920.70. Many markets around the world are slowly becoming more confident about the future of Western economies. An Australian-based mining and exploration company Solomon Gold, told CNBC recently that gold could even reach $2,000 an ounce.

However, the better than expected U.S. economic informational data creates a “growing risk” to the Goldman Sachs forecasts for the price of gold. A combination of a faster than expected recovery on the slow U.S. economy, and an influx of tremendous cash flow injections in the European economic system, has created a situation where the price of gold is going down this year.

Matthew Lynn, founder of Strategy Economics wrote, “By holding more gold, central banks are insuring themselves against their own profligacy. They print money. The price of gold goes up. And if they hold a lot of the stuff in their vaults, they are the big winners from the rise in price. “If you can pull it off – and there isn’t anything to stop you – that sounds like an easy way to make a living.”

Source: CNBC