I'm amazed that gold hasn't been getting the headlines it deserves in the business press. In a very quiet, stealthy fashion, the spot price of gold ha...
I'm amazed that gold hasn't been getting the headlines it deserves in the business press. In a very quiet,
stealthy fashion, the spot price of gold has managed to creep up to almost $1,000 an ounce.
I remember writing in this column at the beginning of the year that, if the spot price of gold were to break the $900.00 per ounce level, then $1,000 would be a cakewalk. Clearly, the price of gold is going up because investors are worried about the global economy and there are very few attractive places to park some cash these days.
After a forced liquidation by institutional investors when capital markets collapsed last year, gold didn't do much, because big investors wanted only one thing -- Treasury bills. Now, after some time has passed and the marketplace has gotten a look at the new fiscal policy that's coming from the government, investors are starting to realize that inflation could be a very big problem down the road.
Also, big investors are looking to invest their cash that's been accumulated over the last several months. Many institutions are slowly picking away at the stock market, but they just aren't bullish enough to go all in. And so, there isn't much else to consider because the outlook for bonds is just plain miserable. Therefore, you have a fundamental situation that is starting to favor gold once again.
Similar to owning a basket of Chinese shares, which I just wrote about, I'd be inclined to consider some sort of gold exchange-traded fund as a way to invest in this sector. There are also a handful of well-managed individual gold producers that would also make for good long-term investment opportunities.
As part of a well-balanced portfolio, I'd say you just have to have some gold. Over the last several months, I've been building a balanced investment portfolio in this column. So far, it would include a bunch of cash, a couple of dividend-paying pharmaceutical companies, a basket of Chinese stocks, and some gold exposure. Stay tuned for further additions.
Capital markets are now worried further about the health of financial institutions in Europe and this is also driving greater interest in gold. I think it's very reasonable to expect some major banking failures over the coming quarters and more nationalization from government. Unfortunately, governments will have to do this with borrowed money, making the long-term interest rate and inflation outlook even more precarious. Governments are trying to print their way out of the current economic situation, but they can't keep borrowing billions and billions indefinitely. Eventually, the cost of this borrowing will have to go up.
So, $1,000 an ounce is a very real expectation in the near future because of the current economic uncertainty and a lack of attractive assets in which to invest. If gold breaks $1,000 an ounce and holds, the commodity price is back in business once again.
Profit Confidential
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