The Case for Higher Gold Prices
"Commodities investor Peter Krauth believes gold prices will
eventually hit $5,000/oz in a 'superspike.' And that could mean even sweeter
returns for gold investors over the long haul."
Gold prices had gold bugs giddy in
the fall of 2011. In September, the luminous yellow metal touched an intraday
high of $1,920 a troy ounce, putting the precious metal up roughly 35% for the
year.
At the time it seemed like investors, traders and even the guy at
the corner store were all buying, hoarding, and lusting for gold. But the
stellar gains were short lived, and by the end of the year gold
prices had fallen by nearly 20%.
Part of the striking decline in
gold was due to the fact that the "smart" money that had once been amongst
gold's biggest cheerleaders, sold it.Some booked profits, some sold it to
reflect gains in portfolios, others were forced to sell to meet margin
requirements, and others wanted to start the New Year with a clean
slate.
Gold
Prices in 2012
Enter 2012,
and gold prices enjoyed a lustrous January, rising some 10%, helped in
particular by Chinese New Year celebrations.
Gold has since languished
as investors became more willing to take on added risk, delving more into
equities. While gold prices foundered, the Dow rose 8% in the first quarter, the
S&P 500 gained 12%, and the Nasdaq enjoyed a nearly 19% gain.And more
recently, not even gold's best friend, Federal
Reserve Chairman Ben Bernanke, offered up much help.
Following the
commencement of the two-day
FOMC meeting last week, gold experienced a volatile day, but managed to end
virtually flat from the previous trading session. The Fed left interest rates
steady and extinguished hopes for immediate further monetary loosening measures.
Without a promise of more quantitative easing, long gold holders headed
for the exits.Nonetheless, many sophisticated gold traders are poised to pounce
on gold with every dip.
Among them is the storied and accomplished
commodities investor Jim Rogers. Best known for calling the commodities rally in
1999, Rogers recently said, "If there is a shock to the system, such as a
eurozone country like Spain going bankrupt, then everything will go down, and I
hope I am smart or alert enough to buy more gold at that point."
The
renowned investor also added that if India, the world's largest bullion buyer,
implemented another tax increase on gold imports, it would pave the way for a
smart entry point for investors, since it would limit the country's input to the
gold market. The Indian government hiked the tax level for gold bars, coins and
platinum to 4% in March, up from 2% in January.
Meanwhile, Rogers is
mildly bullish about economic conditions in the United States for 2012, noting
that because we are in an election year, the government is pulling out all the
stops to boost the U.S.
economy for at least two years.
So, Rogers is positioning his portfolio
by stocking up on commodities, including gold. He explains that if economies do
recuperate and prosper, they are going to need more commodities.Conversely,
Rogers says that if growth wanes and a recession looms, he wants to have a stash
of commodities because of the flood of money-printing that is bound to follow.
Either way, Rogers likes gold.That is not to say that gold is bulletproof.
In fact, Rogers says a gold price correction could happen sooner rather than
later, and the downside is $1,200-$1,300 a troy ounce.
The Power of Gold
Of course,
there are myriad reasons to be enamored by the precious metal.
As the
World Gold Council notes:
- Gold is one of the few financial assets that does not rely on an issuer's promise to pay.
- It offers investors insurance against extreme movements in the value of other asset classes.
- It provides a portfolio with diversification, adding protection against fluctuations in the value of one single asset or group of assets.
- It acts as a hedge against inflation because it retains its purchasing power.
- It is held as a hedge against currency fluctuations.
- The demand for gold has shown sustained growth in recent years and the supply/demand ratio has positioned the yellow metal for its most positive outlook in over a quarter century.
And as more
and more people become disenchanted with paper currency as a store of value,
gold prices promise to rise.
So how high can gold prices climb in 2012?
According to commodities expert Peter Krauth, gold will reach $2,200/oz.
in 2012. That's about 35% higher than gold's current level of about
$1,635/oz.
"None of the fundamentals supporting gold prices have gone away,"
Krauth said. "Instead, they've only become even more
entrenched."
Longer
term, Krauth believes gold prices will eventually
hit $5,000/oz in a "superspike."And that could mean even sweeter returns for
gold investors over the long haul. Investors may be wise to watch for and seize
upon any sell-offs in gold.
- Umesh Shanmugam
No comments:
Post a Comment