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Outlook 2011: Fear and Love in Gold Trading

Wall Street has been calling gold a bubble since 2005, when it hit $500. Some media naysayers remained negative even as they wrote the headlines proclaiming record highs and saw gold rise almost 30% in the past 12 months.

Interestingly, despite gold's latest run, it was still a laggard compared to many other commodities. In the commodity world, gold didn't even place in the top half in 2010. Against a basket of 14 commodities that includes everything from aluminum to wheat, gold's 29.52% return places it eighth. Palladium took the top spot with a 96.6% return, followed by silver with an 83.21% return. Natural gas continued its cellar-dwelling ways, dropping 21.28% to become the worst-performing commodity of the basket.

There are two main drivers of gold demand: The Fear Trade and the Love Trade.

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