Since the inception of this web site we have opined about gold being a store of wealth and a necessary addition to any long-term emergency preparedness plan.
Whether you are planning for a multi-year recessionary crisis, economic collapse, deflation, hyperinflationary depression, or Mad Max, gold seems to be the one physical asset that promises to provide some level of protection when the future of paper currencies and other asset classes is in question. Though it’s not often mentioned as one of the investing tools at one’s disposal, by all accounts it does seem to be gaining acceptance by mainstream investors:
Investors are accumulating enough bullion to fill Switzerlandâ€™s vaults twice over as goldâ€™s most- accurate forecasters say the longest rally in at least nine decades has further to go no matter what the economy holds.
Analysts raised their 2011 forecasts more than for any other precious metal the past two months, predicting a 10th annual advance, data compiled by Bloomberg show. The most widely held option on gold futures traded in New York is for $1,500 an ounce by December, or 18 percent more than the record $1,266.50 reached June 21. Holdings through bullion-backed exchange-traded products are already at more than 2,075 metric tons, within 0.1 percent of the all-time high.
â€œEither a swift economic recovery or further dismal economic performance should bring new buyers into the market,â€ said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt who was the most accurate forecaster in the first quarter and expects the metal to rise as high as $1,400 next year. â€œA stronger economy would create more jewelry demand. If the economy stays weak or gets worse, then investors will be looking for a safe haven.â€
Billionaire financier George Soros recently referred to gold as the ultimate bubble, and we agree. In the last decade we’ve seen bubbles in technology, US real estate, Chinese real estate, oil, and the credit markets. As we speak there is likely a bubble developing in US Treasuries as investors around the globe shift assets to what many believe to be the last bastion of safety in the investment world. But as the Bloomberg piece cited above points out, investors are coming to realize that there may be another investment that is just as safe, if not safer, than U.S. debt, and billions of dollars all over the planet are shifting into it. Keep in mind that buying at the top of the bubble is a bad idea, but not during the initial stages.
We are currently in the opening stages of a massive gold bubble that will be blown over the coming years. The next phase of the crisis, which is beginning to play out right now, will solidify our long-held views that the problems stemming from the 2008 crisis were not averted, and that we are actually worse off now than we were in the midst of 2008 and 2009. As our Gross Domestic Product comes to a near stand still later this year, it is impossible to predict exactly how stock markets will react, or what the government will do in response. Though, we will take a shot and forecast that, based on recent lip-service coming out of Washington – the Federal Reserve, Treasury and our government controlled banks will do whatever it takes to avoid deflation – meaning they will print more money and pass even more laws restrictive of actual economic growth.
Regardless of the immediate impact this has on stocks or the perceptions of consumers, once it becomes clear that our elected and appointed officials have failed at the very thing in which they have been deemed experts, the general public (globally) is going to lose confidence in their abilities to further manage the crisis.
As a result, even more money will shift into precious metals – there will simply be no alternative over the longer term.
Whether analysts are right or wrong about the $1500 per ounce price target for gold over the next year or so is yet to be determined. We’ve got our own views on this and they may not mesh with those of the analysts.
If there’s anything that we should have learned from this crisis it’s that the analysts are usually surprised by what happens.
Over the long-term, gold is going up. To us, that’s a given, partly because of the reasons cited above. In the near-term, which is the time frame to which most analysts subscribe, we should be ready for anything.
One situation in which gold may actually go down in the near-term, as opposed to the price targets of the analysts, is during a stock market crash. What if, in a repeat of the 2008/2009 market collapses, investors simply decide to sell everything first, and ask questions later? What if they begin to unload their blue chip stocks and bank shares just as quickly as they sell their gold? In 2008, we saw gold suffer a significant decline because of this phenomenon coupled with a strengthening dollar. Perhaps a similar scenario will play out in the months ahead.
Whatever the case may be, however, the long-term outlook for gold remains positive. Crisis, not deflation or inflation, will be the driving factor. And, given where we’ve been, where we are, and what we can expect in the future, we are nowhere near a recovery.
Thus, regardless of what the analysts are saying, be they supporters or detractors, gold and silver remain our top investment vehicles as a store of value for the preservation of wealth. Whether you’re buying gold bricks to diversify some of your amassed wealth or stocking pre-1965 quarters for your bug-out bags, you can feel confident that you are backed by over 5,000 years of monetary history that proves your investment will never go to zero.