Why central banks could help push gold prices higher

Beyond the technical arguments, one fundamental factor likely to affect gold and related investments for the rest of 2012 will be what central banks decide to do with the precious metal.

They are more likely to be net buyers, which should put upward pressure on recently stalled gold prices, says Christopher Henwood, former VP at Goldman affiliate J.Aron, and founder of HenwoodEdge.com.

In an interview at Covestor's NextInvest conference, Henwood had two important gold observations:

1) The March lows mark the sixth major test of the long-term gold trendline since the 2008 lows. The uptrend persists, having recently held that major support level.

2) Central banks continue to be buyers of gold, with Turkey, Russia, Thailand and Korea all raising their reserves recently. It's a similar argument made by Matthew Lynn at MarketWatch this week, who adds that the big, developed world banks may also start buying gold again, which he says could provide "rocket fuel" for gold prices.

Lynn provides three main reasons central banks may increase their gold stakes in the future:

• Partly as a hedge in financial crises
• To allow countries outside the U.S. to intervene in their currency markets
• To help some sovereigns maintain their credit ratings

Check out the full Henwood video below for details, as well as his comments about his ideal gold exposure. And of course, talk to your advisor, or an advisor at Covestor, if you have questions about building a properly diversified portfolio.

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