June 23, 2024

Gold, Cheap at $5000?

Although I have been following the gold market for many years, I can’t seem to remember the last time that I have seen so many unanimously bullish articles on the price future of the yellow metal.  Typically in the past, I would note that a bullish article in a major publication or a cover story on a major magazine would coincide with a price peak, rather than a buying opportunity.

Is this time different?  Most of the bullish opinions on gold are based on the actions being taken by the  world’s governments to reflate the economy with oceans of cash and credit.  Let’s take a look at a sampling of some of the recent bullish articles on gold that appeared after the gold shares and the bullion recently rebounded sharply, after a nasty sell off from the price peaks of early 2008.

Will gold protect us from bailout inflation?

As the amount of bailouts and guarantees by the Federal Reserve grow exponentially, worries are mounting over the future inflationary impact of these actions.  Is buying FSAGX the best way to protect your purchasing power?

The role of gold in the world’s monetary history

For those who dismiss the idea of gold as having a continuing role in the world’s monetary system, consider that central banks and the IMF hold 80% of the world’s gold reserves.

Gold could gap up by hundreds of dollars in one day

Gold’s price is artificially low at this point, but fundamental market forces will prevail with huge and sudden price gains.

Low gold lease rates foretell of higher prices

The gold carry trade is now unprofitable resulting in less gold being supplied to the market place at a time of huge physical gold demand.

“gold itself is now free to rise in deflation given its true role as money”

Based on the technical breakouts on the gold stock charts and monetary fundamentals, it looks like a bottom is in for gold here.

Citi anaylst predicts $2000 gold price

As the huge government stimulus efforts work their magic, over time, inflation is expected to rise significantly causing large increases in the gold price

All of the above posts are written by exceptional ananylsts; over time I believe that they will be correct in their bullish assessment of gold – the exact timing of the price increase is not important.   I have been adding to my gold stock and bullion positions over the last fifteen years and will not sell until gold reaches $5,000 or Time Magazine runs a cover story on why everyone should own gold.

Gold investors have been laughed at for years and there have been long periods of declines and/or under performance in price versus other asset classes.  Gold, however, is the only monetary asset where the ultimate value of your investment is not sujbect to someone’s else’s promise or ability to pay.  I view gold as the ultimate insurance hedge against a government’s propensity to spend itself into insolvency and, accordingly, I believe that gold should constitute 10 to 20% of one’s core investment assets.   Historically, governments  have regularly and repeatedly defaulted on their sovereign debts.  In every such case of default, the citizens of those nations would have been far better off holding gold rather than government paper.

Speak Your Mind