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Gold prices have been well off their highs on the strength in the U.S. dollar, but Morgan Stanley analysts continue to be bullish on gold for 2012.
Fed action, including the likely adoption of QE3 in the first half of the year, is expected to boost gold prices. Moreover:
"...Recent coordinated actions by six central banks and separate actions by the ECB suggest that non-gold related measures to ease access to USD swaps will be successful, reducing downside pressure on the gold price."
Drawing on this they think gold prices will depend on the persistence of four pillars of the original bull market namely:
  1. Decline in producer hedging. Last year gold mining companies growing cautious on gold volatility began hedging to lock-in prices for their future output. But Morgan Stanley analysts say a decline in hedging or a potential de-hedging could be a  "positive demand factor".
  2. The decline of developed market central bank sales and rise of emerging market central bank purchases
  3. The inability of gold mining companies to increase gold supplies materially
  4. Long-term growth in physical investment demand.
Morgan Stanley projects gold prices will rise to $1,845 per ounce in 2012 and $2,175 in 2013. For now they see that absence of central bank sales, limitations in size of the scrap gold pool, the rising demand from ETFs and coin sales is likely to see the bull market last into 2012 - 2013.