In a fascinating Q&A for his newsletter subscribers, resource expert Larry Edelson is asks, “Is the bull market in gold over?”
In his Real Wealth, the advisors discusses five primary reasons for remaining bullish on gold for the long-term – and offers some favorite fund and ETF plays for investors seeking exposure to this sector.
“No way, no how. Any pullbacks you see in gold, no matter how bearish they may appear, are opportunities to buy! The basis for that view ...
“First, the charts and technical analysis suggest that gold remains in a very strong, long-term uptrend. Even its sharp pullback has failed to break the back of the long-term uptrend.
“In fact, gold could fall to $643 and it would still be in a long-term bull market that would lead to new highs down the road. I don’t believe gold will get that low, but if it does, I would buy it with both hands.
“Second, keep in mind that throughout history, asset classes always reach their inflation-adjusted prices, no matter what the asset class is.
“They wax and wane, falling behind the inflation curve at times ... catching up and exceeding their inflation-adjusted prices at other times.
“That’s true of all asset classes, be they bonds, stocks or commodities. Gold has not yet caught up with inflation (or put another way, the massive decline in the purchasing power of the dollar). But it will.
“Gold will reach $2,270 an ounce in the years ahead and will probably exceed that level (just like oil exceeded its inflation-adjusted high). I have absolutely no doubt about it.
“Third, the bear market in the dollar, one of the principal forces behind gold’s bull market, is not over. I’d like to believe that it is, but it’s not. The dollar has much more to go on the downside.
“Yes, the dollar has had a decent rally. But the dollar index remains deeply embedded in a bear market and even still below levels seen just last year. In other words, the dollar’s recent rally is nothing more than a bear market bounce.
“Fourth, there will be more financial failures — from banks to insurance companies to large corporations. This will lend underlying support to the price of gold. Gold is not just an inflation hedge; it is also a financial crisis hedge.
“Fifth, gold’s supply and demand fundamentals support a continuing bull market. Demand for gold in dollar volume reached a record high in the second quarter of this year ... and by all indications, the third-quarter stats should show yet another record high in demand.
“Meanwhile, supplies continue to tighten. South African gold production has plunged more than 12%, and many major gold miners are forecasting a slide in production for the second half of this year.
“The production drop-off will probably turn out worse than expected as new mine exploration and mine expansion plans have come to a halt due to the world markets’ credit freeze.
“Also important from a supply point of view, central bank sales of gold are running at their lowest levels since 1999. Bottom line: Both short and long term, the demand/supply equation in gold favors a long-term bull market.
“If you do not own gold by now, there’s still time. Gold is headed substantially higher. The SPDR Gold Trust (NYSE: GLD) is a liquid ETF that owns the physical gold for you, but without the storage hassles.
“I also suggest owning gold stock mutual funds; we would spread our gold fund positions among the following three vehicles: Tocqueville Gold Fund (TGLDX), U.S. Global Investors World Precious Minerals Fund (UNWPX), and U.S. Global Investors Gold and Precious Metals Fund (USERX).”
