If part of your portfolio isnât already allocated to gold, youâd be remiss not to start building a position. At least thatâs what a number of luminaries in the world of investments told attendees at IndexUniverseâs 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 diminishârelative to gold at least. The problem is likely to get worse, meaning that goldâs bull run isnât 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 isnât 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:âDoes gold have an appointment with $2,000 in 2012?â
âPrecious metals are headed higher; significantly higher, perhaps explosively higher,â 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.
Whatâs 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. Thatâs true even since financial markets collapsed in 2008. To those who need a reminder, the tech-heavy Nasdaq indexâs peak on March 10, 2000 was preceded by near-vertical gains in the preceding year.
For chartists, goldâs lack of sharp, âparabolic,â 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 âPrecious Metals and Goldâ 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.
âGold isnât in a bubble,â said panelist Mary Anne Aden, of the âThe Aden Forecast,â a financial newsletter she produces with her sister Pamela Aden from their home in Costa Rica. âItâs in the quietest bull market weâve seen in years.â
No Price Is Right
For all the bullishness surrounding the yellow metal, few people at the âInside Commoditiesâ conference were predicting how far the rally might go in terms of price, whether thatâs $2,000 a troy ounce or considerably higherâthough the latter possibility seemed to be where most of the sentiment was.
Cumberlandâs 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, thereâs 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.
Dennis Gartman, a longtime trader and also the editor and publisher of the âThe Gartman Letter,â 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 âgoes from the lower left to the upper right,â heâll be long gold. At what price the rally peaks and reverses is anybodyâs guess, Gartman said.
Asked on the sidelines later how he might know when the bull run is over and itâs 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 Fedâs easy-money policies, thinks itâs 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 isnât clear, Schiff said.
While it may be tempting to call Schiffâs outlook extreme, it definitely illustrates the anxiety thatâs 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.
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, itâs 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.
âEasy gold is long gone,â 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 worldâs 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 goldâs 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:âNo paper currency has lasted forever.â
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