Gold Shines Brightly At ‘Inside Commodities’

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If part of your portfolio isn’t already allocated to gold, you’d be remiss not to start building a position. At least that’s what a number of luminaries in the world of investments told attendees at IndexUniverse’s 4 th Annual Inside Commodities conference.

Behind their thinking was conviction that developed-world governments are so deeply indebted that the value of their currencies will only diminish—relative to gold at least. The problem is likely to get worse, meaning that gold’s bull run isn’t over, panelists at the conference held on Dec. 8 at the New York Stock Exchange said. As it stands, gold is up 600 percent in the past decade to more than $1,700 a troy ounce.

Virtually all agreed that the worst economic downturn since the 1930s isn’t over yet, and some there, like Marc Faber and Peter Schiff, are adamant the real crisis has yet to truly unfold. It was a question of degrees, and either way, gold looks attractive. None of the panelists was putting a price on the rally, but one audience member set the tone when he asked:“Does gold have an appointment with $2,000 in 2012?”

“Precious metals are headed higher; significantly higher, perhaps explosively higher,” David Kotok, chief investment advisor at Cumberland Advisors, said during a panel on the dollar and inflation. Cumberland manages more than $2 billion in assets for individuals and even more for a number of institutions.

What’s striking is that for all the talk about gold these days, its rise over the past decade looks smooth and steady on a price chart compared to, say, the technology bubble of the late 1990s. That’s true even since financial markets collapsed in 2008. To those who need a reminder, the tech-heavy Nasdaq index’s peak on March 10, 2000 was preceded by near-vertical gains in the preceding year.

For chartists, gold’s lack of sharp, “parabolic,” price movements that historically have been consistent with bubbles is a technical affirmation of what everyone seemed to be saying at the conference.

When IndexUniverse Director of Research Dave Nadig asked the audience at the “Precious Metals and Gold” panel he was moderating whether gold prices might fall next year, no hands came up. Only a small minority help up their hands when asked if they or their clients held gold.

“Gold isn’t in a bubble,” said panelist Mary Anne Aden, of the “The Aden Forecast,” a financial newsletter she produces with her sister Pamela Aden from their home in Costa Rica. “It’s in the quietest bull market we’ve seen in years.”

No Price Is Right

For all the bullishness surrounding the yellow metal, few people at the “Inside Commodities” conference were predicting how far the rally might go in terms of price, whether that’s $2,000 a troy ounce or considerably higher—though the latter possibility seemed to be where most of the sentiment was.

Cumberland’s Kotok said that with central banks in the developed world expanding their balance sheets from an estimated $3 trillion to $8 trillion by buying bonds to keep interest rates low, inflation will be created and gold will rise as the buying power of currencies from the dollar to the euro weakens.

Moreover, there’s increasing evidence central banks in the developing world have become net buyers of gold.

Add to that the increasing interest in physical bullion ETFs such as the SPDR Gold Shares (NYSEArca:GLD) and the iShares Gold Trust (NYSEArca:IAU) among everyone from retail investors and hedge funds, and the gold juggernaut seems to be full of steam.

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Dennis Gartman, a longtime trader and also the editor and publisher of the “The Gartman Letter,” confessed to the panel on inflation of having little patience for gold bugs and those who see nothing but doom and gloom.

But having said that, he stressed that as long as the price chart of gold “goes from the lower left to the upper right,” he’ll be long gold. At what price the rally peaks and reverses is anybody’s guess, Gartman said.

Asked on the sidelines later how he might know when the bull run is over and it’s time to sell, he said no one is ever sure, but that he hopes he gets out in a timely manner.

Peter Schiff, president and chief global strategist of Euro Pacific Capital and a well-known critic of the Fed’s easy-money policies, thinks it’s likely that one day the price in dollars of one ounce of gold will match the Dow Jones industrial average. Whether that meeting point is 3,000, 6,000 or 12,000 isn’t clear, Schiff said.

While it may be tempting to call Schiff’s outlook extreme, it definitely illustrates the anxiety that’s coursing through the global economy these days, as the eurozone stumbles from one half-agreement to the next, and U.S. politicians are deadlocked on how to spur growth and attack the growing budget deficit.

Tightening Supplies

To add an ominous element to the gold discussion, data from the World Gold Council show that gold mining production has fallen in recent years, a sign that, like crude oil, it’s become harder to find and more difficult to extract.

That suggests that if buying interest continues to grow in the coming months and even years, gold will become even more precious, adding additional fuel to price increases.

“Easy gold is long gone,” Jason Toussaint, a managing director at the World Gold Council, told the audience during the precious metals panel. As an example, Toussaint cited South Africa, one of the world’s biggest gold producers, saying mines there will be depleted within 14 years. Only expensive new technology aimed at extracting at depths greater than two miles could revive production, he said.

But if the demand is there, gold will be mined at whatever price.

To those who scoff at the idea that gold’s value is real and who have doubts about its enduring allure throughout human history, Mary Anne Aden served up a startling reminder fitting for a world full of questions about what the future holds:“No paper currency has lasted forever.”

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.