Gold Investing: $2,400 An Ounce?

| July 22, 2011 | 0 Comments

I know, I know… another article about gold.

You’ve probably read a hundred articles on the yellow metal in the past month.  And I’m sure you’re wondering why you should read this one.

Well here’s why…

Recent data suggests gold’s epic bull run is actually gaining steam.  And if you don’t already have some gold stashed away, what I’m about to tell you may have you running to your bullion dealer to pick up whatever you can afford.

Now, maybe you think gold’s too high to buy at $1,600 an ounce.  Or maybe you feel gold is a “barbaric relic” with no use in a modern economy.

Well, that’s the same argument gold bears have been making for years. And for years they’ve been dead wrong.

After all, gold’s been on a steady move higher for over a decade now.  In fact, since 2000 the precious metal is up a staggering 450%.  Not bad considering the S&P 500 turned in a gigantic goose egg during the same time frame.

Clearly, gold has outperformed equity investments as a whole since the turn of the century.

Alas, that’s water under the bridge…

The real question is… “Is it too late to invest in gold?”

To help you make that decision, let me throw a few facts your way. Maybe then you can decide if gold is right for you.

First of all, the World Gold Council recently reported central banks bought more gold in the first half of 2011 than they did in all of 2010.  That’s interesting considering central bankers were net sellers of gold up until 2008.

Maybe they’re finally realizing their global money printing campaigns are getting out of hand.

Speaking of money printing, do you realize the US monetary base has increased more than 200% since September 2008?  Meanwhile, gold rose a mere 70% over the same time period.  Put in those terms, gold still has serious catching up to do.

And let’s not forget China…

The country is having a heck of a time controlling inflation.  In fact, a recent reading came in at 6%.  That’s well above the 4% rate China’s government is shooting for.  That has Chinese investors buying up record amounts of gold.

How much you ask?

Well, for the first time ever, Chinese gold demand outpaced the combined total of developed Western countries in 2010.

In other words, add up the demand from France, Germany, Italy, Switzerland, the US, and the UK.  You’ll find China demanded more gold than all of them put together last year.  What’s more, many analysts expect the Chinese demand trend to accelerate in coming years.

And finally, if you’re still concerned gold is overpriced at current levels, consider this…

Gold still isn’t trading at all time highs in inflation adjusted terms.  Yes, gold is trading at all time highs in nominal terms.  But when you take inflation into account, it’s not even close to surpassing the old record.

In fact, gold would have to rise to $2,400 an ounce to match the 1980 inflation adjusted high.  That’s another 50% upside from the current $1,600 an ounce investors are paying for gold.

Think of it this way…

Which do you think will happen first?  Will the Dow Jones Industrial Average rise to 19,000 or will gold rise to $2,400 an ounce?  Both require a 50% jump from current levels.

Past performance is no guarantee of future results, but I’ll put my money on gold.  And I think it will happen within the next two years.

Now let me be clear…

I’m not trying to tell you there aren’t big profit opportunities in stocks, because there are… lots of them.  My point is, you should have a portion of your investment portfolio in gold.

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Category: Currency Trading

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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