DEZ
Is this the last great buying opportunity for gold?
Those who predicted that gold would suffer a sell-off at $500 an ounce were proven hopelessly wrong in the first seven weeks of 2006. The yellow metal has soared past the $570 barrier and its present retreat to above $540 an ounce is probably the last great buying opportunity before prices head to much higher levels.
2/14/07
It is all in the charts. If you look at gold's performance over the past few years a steady uptrend is very apparent. But the steepness of the gold price has increased significantly since last September and the shape of the curve has become the classic base of a parabolic uptrend that is something that all chartists love to spot.
This pre-boom trend line was clearly visible in the late 1990s before the Nasdaq boom, and is exactly what happened just before the UAE stock market started its vertical assent last year. Now booms eventually turn to bust, but getting in before a market lifts off can be very profitable.
Gold stocks soar
And it certainly has been for gold investors in 2006 - even taking into account the retrenchment of the past few days this asset class is showing a 10% gain for bullion, and gold mining and exploration stocks are up 20-50% since the article recommending them in this column two months ago.
Exchange Traded Funds for gold have become very popular. 'The Daily Resource' newsletter says ETF holdings of physical gold are up from 170 tonnes a year ago to 414 tonnes, which makes ETFs the 13th largest official holder of gold in the world. For the uninitiated an ETF buys physical gold as shareholders buy its fund, and thus tracks the gold price in a convenient and liquid asset.
Clearly some of the huge liquidity of the world is being parked in gold whether in ETFs or gold companies. Investors are seeking protection from inflation and a safe haven immune from the vagaries of stock markets and bonds.
They are worried that the global financial system has created too much credit which has eroded the pricing of risk, setting capital markets up for a crunch period, or stock market crash in more bold terms. They are worried that high oil prices are a ticking bomb under consumer price inflation figures, and note with alarm rising costs of production.
Investment logic
They also find no compelling argument to buy real estate at current price levels, and so by default gold becomes the asset class of choice. They are worried that Iran will spark a new oil shock, or some other geopolitical fault line will crack. And the more investors that make this leap of logic, the higher the price of gold will go.
For gold prices have lagged behind in the general inflation of commodity prices in the first years of this century; there is no other asset that is cheaper today in both absolute and relative terms than it was 25 year's ago.
The general buying public, and even most of the financial community, just have not twigged what is going on yet. When they do, and it may take just one 'unexpected event' to make them wake-up, then everyone will want to own gold again and the price will soar way beyond anything imaginable today.
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