9/5/2012 8:29 PM ET|
The next gold rush has begun
After a long lull, gold looks poised for another run toward $2,000 an ounce and beyond. Here's why -- and how to jump on board.
The next four months are packed with big political decisions that are sure to roil global markets. Investors are worried, and they continue to move out of stocks and into cash and bonds. I think that's the wrong move.
Their focus instead should be on gold.
While stocks are up 8% off of their spring lows, gold is up 11% and gold-mining stocks are up more than 22%. Last month, gold was up nearly 6% compared with just a 2% gain for the Standard & Poor's 500 ($INX). What's more, the recent outperformance is likely to continue, with some on Wall Street calling for the yellow metal to take another run at $2,000 an ounce -- thanks to catalysts that will also pinch the fixed-income holdings retail investors are buying now.
Global central banks are poised to unleash a strong, coordinated dose of monetary policy stimulus. Politicians in Europe and here at home face a near-impossible task of balancing growth and budget austerity at a time when the stakes couldn't be higher. And food and fuel prices are heading higher, presaging more inflation.
In this environment, investors can't afford to focus on fixed-income assets that won't protect them from financial turmoil and higher prices. They need to return to an old favorite that's been shunned for more than a year.
Here's why gold is about to enjoy another rush of popularity.
The start of something great
First, a quick look at where we stand.
For months, precious metals have been mired in a tightening range near support from their December 2011 lows after peaking earlier last year. Gold reached a high of $1,923 an ounce in the wake of last summer's U.S. credit rating downgrade, while silver hit a high of nearly $50 an ounce in April 2011 before losing nearly half that.
Since then, gold has found buyers near $1,550 an ounce and sellers near $1,630, and it hasn't broken out of that range. Silver has been stuck around $28 an ounce. Much of this has to do with the value of the dollar, which Merrill Lynch analysts find to be one of the strongest influences on precious-metals prices.
You see, the greenback had been marching steadily higher since early 2011 on a combination of fresh concerns over Europe, a relatively strong U.S. economy (compared with those of China and Europe) and a lack of aggressive action by the Federal Reserve. Not since late 2010 has the Fed unveiled stimulus that actually expanded the monetary base -- which is a very narrow way to look at the money supply. An expanding monetary base is a de facto debasement of the dollar, something that is a big-time positive for gold and silver since a falling dollar tends to be highly inflationary.
Contrast this with the Federal Reserve's "Operation Twist" initiative started in September 2011, which merely took money from one pocket (short-term bonds) and put it into another (long-term bonds) to try to push down long-term interest rates. It didn't actually create new money. It didn't expand the monetary base.
And, with Europe a mess, there wasn't much reason for traders to hold euros. So they didn't. This strengthened the dollar, and precious metals suffered for it.
That started to change in late July, when European Central Bank chief Mario Draghi pledged to do whatever it takes to defend the eurozone. That pushed the dollar down off its highs, helping gold push off its lows via the currency effect (gold benefits from a weaker dollar) and inflation effect (a weaker dollar pushes up U.S. inflation via more-expensive imports, and gold is seen by investors as an inflation hedge).
The move accelerated two weeks ago as the Federal Reserve released the minutes of its August meeting, in which it was noted that many members of its policymaking committee judged further policy easing was "warranted soon" unless the economy strengthened substantially. They added that another round of direct bond purchases -- the eagerly anticipated "QE3" -- would boost business and consumer confidence as well as lower long-term interest rates and ease credit conditions.
These comments opened the door to new stimulus action at the Fed's September meeting -- something that sent the dollar lower, lifted commodities higher and pushed precious metals even higher out of their long downtrend.
As a result, gold is up 7% from its mid-July levels, the Market Vector Junior Gold Miners ETF (GDXJ) is up nearly 22%, and, by all indications, the moves are far from over.
More gains to come
I can't say enough about how good the surge in the precious metals is looking now. All the pieces are lining up for continued gains in the coming weeks.
Sentiment remains subdued, with investors still not moving heavily into the metal funds, such as the Market Vectors Gold Trust (GLD) or the iShares Silver (SLV), as they have near previous tops for gold and silver. There is technical strength in the charts. And there is fundamental support from central bank easing and incipient inflationary pressure. In addition, currency trends are favorable, with the dollar weakening.
We've also got the specter of supply disruptions out of South Africa, with fresh violence between government and labor leaders feuding over profits and safety. This has already resulted in fatal bloodshed. Separately, miners also reportedly attacked a remote village in Venezuela's Amazon jungle, killing dozens.
These disputes are big, because the long-term supply situation for gold and silver is worrisome as production costs rise. Mining companies are now focusing on undeveloped reserves in some of the most inhospitable places in the world.
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Warren Buffett, Chairman of Berkshire Hathaway, expressed similar reservations about gold as an investment on Monday on CNBC’s Squawkbox:
“When we took over Berkshire, it was selling at $15 a share and gold was selling at $20 an ounce. Gold is now $1600 and Berkshire is $120,000. Or you can take a broader example. If you buy an ounce of gold today and you hold it at hundred years, you can go to it every day and you could coo to it and fondle it and a hundred years from now, you’ll have one ounce of gold and it won’t have done anything for you in between. You buy 100 acres of farm land and it will produce for you every year. You can buy more farmland, and all kinds of things, and you still have 100 acres of farmland at the end of 100 years. You could you buy the Dow Jones Industrial Average for 66 at the start of 1900. Gold was then $20. At the end of the century, it was 11,400, and you would also have gotten dividends for a hundred years. So a decent productive asset will kill an unproductive asset.
Only own physical gold.
Only buy gold that you can walk out of the store with. Anybody stupid enough to own gold certifcates or stocks deserves the fate that awaits them.
There is only a finite supply of gold in the world. They can't print gold like they have been with all this virtual money. There is only so much gold out there. And after nations have laid their hands on it and stored it way, and after all the commercial operations and the marketplace lay their hands on their supply needs, after this gold has been stored away, the rest is what is available to the public.
If you do not take possession of the gold you have paid for at the time and place of purchase, don't be surprised if it is not there. "Sorry. Come back in two weeks." When you go to redeem your gold certificates and promissory stocks don't expect these promises to be kept. The gold bubble is the next bubble. The people responsible for the greatest financial collapse since the Great Depression have come up with a new way to seperate you from your money. Just remember, as none of these criminal shyster banksters have been prosecuted or jailed, nothing has changed. The game remains the same.
These gold certificates are being played like CDOs and any other speculative derivatives, and prime mortgages. Sold and resold again and again and again. They are hypothecated (resold) and hypothecated (resold) infinitely.
What happens when infinite promises are made about something that only exists in limited amounts? The average investor loses. Don't get fooled again.
Raising taxes on 2% of Americans will not solve the crisis. In fact it can be argued that the negative feed back of raising taxes on the most productive 2% will be counter productive with the change in behavior of the 2% who do the investing and hiring.
The Government spending can not be cut. Blame the man in the mirror for this.
The next solution for the debt is to raise taxes on the middle class. A VAT tax. That is where the money is! But Hell will freeze over before this will happen.
Before Hell freezes over and we have a VAT, we will have inflation. (Eventually there will be a VAT, a tax on the middle class. Remember when the income tax was marketed, the progressive income tax was only for the 1% of 100 years ago. What happened?)
Incidentally, I have noticed an increase in form filling out over the years with Gold purchases. Why?
Buy your Gold before you have to register it like guns, of which I am doing the same with guns also.
We may be facing another period of hyper-inflation. Just look at your grocery bill. Just look at the price of gas. Just try going to Barnes & Noble and buying a book for $20.00.
During the Weimar Republic the German people were paying a billion marks for a loaf of bread. People were using wheel barrows just to buy grocercies,and the wheel barrows were filled with German marks. People were using currency to heat their homes. Those who had bought gold survived because the value of an ouce of gold grew in direct relation to the cost of goods and services.
Richard Nixon did away with the gold standard so he could pay for the Vietnam War. The gold standard got in the way of Nixon calling the value of a dollar whatever he wanted to.
We are not use to dealing with gold. But now, with our economy heading towards probable collapse, gold and silver are again beginning to shine.
Gold...yeah goodluck buying your coffe with that..
So you have a gold bar and your going to trade it for what?
This is such a con,like diamonds being worth so much or electric cars save th planet!
Pay your debt off,save your money in a can at home and buy ammo,then you can buy ,sell or defend what you have.
Invest in commen sense and not this revamped wall street con game again!
These countries don't have to own all the gold to make it work. All they have to do is value the gold they do own together, against the amount of their new currency.
Don't let anybody tell you that we cannot have a gold based economy again. A hundred years ago, when an ounce of gold ounce might have been valued at $35.00 per ounce to support a billion dollar economy; in 2012 an ounce of gold might be valued at $5,000.00 per ounce to support a trillion dollar economy.
And where does the wealth go? To the stonger economy.
DO YOU KINDA FEEL LIKE YOU HAVE STRINGS TIED TO YOUR HANDS AND FEET WITH SOMEONE PULLING ON THEM? THAT'S THE MANIPULATION OF A FEW PULLING THE STRINGS OF MANY. BEING THERE AT THE RIGHT TIME TO TAKE ADVANTAGE OF A SITUTAION IN WHICH YOU HAD A HAND IN ORCASTRATING SEEMS TO BE THE TICKET TO GETTING AHEAD OF OTHERS. THAT HAS ALWAYS BEEN THE NORM BUT IT SEEMS THAT SOOOO MANY ARE GETTING SOOOO GOOD AT DOING IT THAT THE SMALL FISH WHO DOES IT THE CONVENTIAL WAY GETS SWOOPED UP IN THE WASH.
HOW MANY PEOPLE GET A SMALL PIECE OF YOU IRA WHEN YOU INVEST A DOLLAR?
Typical msn money. one article says gold is a lousy investment and the other says its poised for a run up. on the same day, I bought gold and silver. In 12 months we shall see I guess.
To go back to a gold standard means massive deflation and valuation of assets. Get ready.
Gold pumpers lie too much. Now would be the absolutely worst time to buy any. Five years ago it was about half what it is today. Give or take the wholesale repurchase rate and you could have done better nearly everywhere else. We absolutely can't go back to gold as an Index because we let China hoard too much. Now that China has it hoarded, expect long term holders to get hung out at extremely unrealistic prices. It's a rock we don't use in our everyday lives, folks.
Instead of SLV and GLD, I would recommend PSLV, PHYS and CEF. SLV has the problem of having JP Morgan as its custodian and Bank of New York Mellon as its trustee. The key reason is that you will find the words "unencumbered" and "fully allocated" in the prospectus for PSLV, PHYS and CEF.
On JP Morgan: Bing or Google: Gold as an investment, Short Selling (wiki), Silver as an investment, Short Selling (wiki).
On BONY Mellon, Bing or Google: Bank of New York Mellon Sentinel Management Group
JP Morgan and Bank of New York Mellon may not be the kind of people you want to do business with.
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