7 Reasons to be Bullish on Gold

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What's going on with gold prices?

With the price of the yellow metal near two-year lows through much of 2013, some investors wonder whether the price decline will continue.

Is this a bear market for gold or will it rebound?

A new report from analysts at Incrementum AG in Liechtenstein says there are good reasons to be bullish on gold, which was trading Wednesday at about $1,252 an ounce.

In fact, the report, titled "In Gold We Trust 2013," set a 12-month target for gold prices at $1,480 and a long-range target at $2,230.

"Even though the consensus is convinced that the gold bull market has ended, we remain firmly of the opinion that the fundamental argument in favor of gold remains intact," the 53-page report stated.

The report said there are no precedents for the current climate of central bank intervention and noted there have been more than 500 interest rate cuts worldwide since 2008.

That makes the need for gold as "monetary insurance" that much more important and will, in turn, push gold prices upward.

"Never before have such enormous monetary policy experiments taken place on a global basis," the report said. "If ever there was a need for monetary insurance, it is today."

The report spells out seven reasons to be bullish on gold:

Reasons to be Bullish on Gold

  • For the first time, the annual "In Gold We Trust" report – now in its seventh year – included a quantitative evaluation of gold with a wide range of scenarios for U.S. monetary policy. Even weighing factors that could lower the price of gold, the report arrived at the long-term target of $2,230.
  • Negative real interest rates are still anticipated for the time being. Amid current financial woes, the report predicted the Federal Reserve, the Bank of Japan, the Bank of England and the European Central Bank all will continue to keep interest rates at a low level. And historically there's been a strong link between negative real interest rates and gold prices.
  • "Gold is the only liquid investment asset that neither involves a liability nor a creditor relationship," the report stated, calling gold the "only international means of payment independent of governments" and noting it has survived every war and national bankruptcy.
  • Unlike the gold market in 1979-1980, when the metal's price soared, it's unlikely the current bull market will end as a result of a major increase in interest rates, given the fact that governments, corporations and households are saddled with heavy debt.
  • The gold mining industry is undergoing changes to its priorities to put profitability, disciplined capital deployment and stable cash flow per ounce of gold over maximizing gold production.
  • "We believe that the new commitment to transparent cost reporting, greater financial discipline and shareholder value is a crucial – if quite late in coming –
    insight by the sector," the report said. And what of gold mining stocks? The report called them the "ultimate contrarian play."

  • Skepticism, fear and panic are "never observable at the end of a long-term bull market," said the report. Currently, the report said, "We see anything but euphoria in gold."
  • A "bottoming process" on gold prices will soon begin, and there's likely to be "very little" momentum before August. After that, gold prices should begin to rise.


Check out the Money Morning video How to Invest in Gold: Tips from an Expert on the Yellow Metal for advice from Rick Rule.

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  1. William | July 4, 2013

    Seems like gold is currently trying to find a bottom in the $1250 range. Friday's job report will most probably create some more swings in the the price but long term gold remains bullish. Most gold miners made new 52 week lows the past month, very tempting to buy

  2. H. Craig Bradley | July 4, 2013

    REALITIES OF GOLD

    Gold is NOT a safe haven from anything. Witness this year's 45% decline in the price of gold. Gold is not an inflation hedge either. Inflation did not go down when gold declined (corrected). So, gold is JUST another asset class. Therefore, your profit in gold speculation is based only on how much you pay and at what price you sell. Another words, gold is just another investment category. Its not for buy and hold investors because commodities periodically spike and then crash. Gold is primarily for traders.

    • Claire jodoin | July 5, 2013

      I fully agree. History shows that holding gold for a very long period off time can be devastating for one's portfolio. So timing is of the essence and that is essentialy a trader's game.

      • fallingman | July 5, 2013

        Oh really? History shows nothing of the sort. It shows the opposite.

        I bought gold at $70 an ounce and silver at #1.23. That was a very loooong time ago. I'll let you do the math and ponder what that's done to my portfolio.

        I guess I should have traded the gold at $200.

        And ANYONE holding gold for a "very long period of time" would currently be holding at a profit given that gold only exceeded the current $1215 in the late spring of 2010. In other words, in order to have a loss and have devastated your portfolio, you'd have had to have bought at the top and gone overboard on your allocation. Most people buy gold as a hedge that comprises no more than 5-10% of their net worth.

        How would a paper loss of 36% on 5-10% of your port be devastating? And that's the WORST possible outcome anyone could have had.

        Here's a modest suggestion. If you don't know what you're talking about, maybe you shouldn't say anything.

    • fallingman | July 5, 2013

      Mr. Bradley,

      Gold closed December 31, 2012 at $1,677. With gold currently selling at $1,214, that's a 27.6% loss.

      Did you mean 52 week's when you said "this year's decline?" Gold closed at $1,616 on July 3, 2012. That's a 24.8% loss.

      It's hard to "wtness this year's 45% decline in the price of gold" WHEN IT DIDN'T HAPPEN.

      The entire loss from the peak is some isn't even 45%. It's 36.7%.

      How credible do you think it makes you when you can't even get the numbers right?

  3. philio maffia | July 5, 2013

    Fortunatley , I have the one thing money can't buy…….poverty .
    Even so , it does appear comex is downing gold when the demand is increasing . The april slump on gold could be seen as the big boys dumping their ETF's because they 'd lose big style in the medium / long term , so would ( should?) be buying physical gold cheap so they can balance their fiat money by a future hike in gold prices……The april slump was a strategic play by the big boys . While throwing a biscuit to paper and bonds…………it made gold cheaper to buy . Are we on the gold standard , unofficially ?

  4. enthusceptic | July 5, 2013

    I agree that gold is mostly for traders, but maybe it can be good to have some for really hard times?

  5. H. Craig Bradley | July 6, 2013

    Sorry, let me quality my source: Barrons Magazine ( July 2, 2013) as follows:
    "Since the beginning of the year, the Tocqueville Gold Fund (TGLDX), managed by Hathaway, has lost 45% of its value, according to Morningstar"

    Here are two more "facts" for you about historical gold prices (Notice the Spikes and Corrections ):

    http://cdn.theatlantic.com/static/mt/assets/business/assets_c/2013/06/Gold%20Long-Term-thumb-570×476

    The graph shows the price of an ounce of gold from 1265 to 2011 expressed in British Pounds Sterling. Notice it normally resides in a range, except during rare periods (2) of negative interest rates ( 1970's and most recently 2010-2012).

    Alternatively, try the following gold to oil ratio (Barrels per ounce):
    http://www.macrotrends.net/1380/gold-to-oil-ratio-historical-chart

    Touche'

  6. Edward | July 6, 2013

    I have a friend who bought a 2008 or a 2009 Indian Buffalo 1 oz gold coin from the US. mint for $899.95 and in 2011 sold it for $1750.00, what % is that huh ??? gold will always go up, and it has instant liquidity.

    • H. Craig Bradley | July 6, 2013

      GOLD IS A TRADERS COMMODITY, ALWAYS

      Gold does not always go up. You sold at or near the cyclical high for gold (Sept 2011). Had you sold your gold coin this year, your profit would have been substantially less. In addition, the trading of gold and silver coins is usually through a dealer who takes a handsome markup from you booty.

      Gold is neither fungible nor liquid without the middleman. Nice try to spin the truth. You are a "born politician", just not a very good one-probably a liar too. (Everyone who goes to Las Vegas says upon returning they won and "beat the house"). This too is a mathematical impossibility.

      • fallingman | July 7, 2013

        I repeat Mr. Bradley…

        I bought gold at $70 an ounce. I bought silver at $1.23. I've held for a very long time, since Nixon severed the dollar's last link to gold and Johnson replaced the silver coins with phonies. I haven't traded the position. It's worked out pretty well.

        I would suggest that exactly the opposite of what you say is true in every respect. Gold is best viewed as a core "insurance" holding you shouldn't trade, except maybe to get your initial cost back out so you hold it for free.

        Gold COINS are certainly fungible. They're extremely liquid, and no, you don't necessarily need a middleman. And if you do use a dealer for the convenience, his cut is modest if you're buying or selling BULLION coins. Numismatics are a different story.

        On another score, while YOU get the numbers wrong and confuse gold stocks with gold, you're willing to call a guy you don't know a liar, because he related a story that actually fits your narrative. (He made a profit by TRADING.)

        Why the gratuitous insults?

      • Daniel | July 7, 2013

        Actually Gold is not a trader's commodity. Gold is a hedge against political, economic, international conflict, and most importantly inflation.

        Gold is a long term holding and should be treated that way. You are in a trader's mentality when you start talking about peaks and bottoms.

        All stocks go through peaks and bottoms as well. If you simply held the SPX from 2000 to today, you would be up only 13%.

        Similarly, if you held Gold from Jan 2000 to today, you would be up 425%. It is pretty obvious that equities don't grow ad infinitum and if you believe this drug induced quantitative fest will continue forever without ramifications of inflation and misallocations of funds, you are very misled.

  7. Kim Thomas | July 6, 2013

    Oh my, it seems that this heated exchange is ridiculous. Just tell me on one single example throughout any point of history, in any country that Gold was not used as a form of trade in one way or another. Although it has taken a plunge it will continue to be a valued trade in whatever form until we no longer need to trade and everything is free…….. It is not Air, Water, food or love but it will exist until the eutopia of earth happens. No matter what we cannot burn it to stay warm like a paper dollar. Whatever the state of the economy, no matter how dumb people become, no matter who has an opinion it is here to stay.

  8. R.P. Ewing | July 11, 2013

    Opinions are like a……s, everyone has one. What is your problem? Clearly, you email everyone you know and say, "LOOK! I'm quoted on an INVESTMENT NEWSLETTER!" Morons.

  9. Louise | July 12, 2013

    This is a comment from a relatively uninformed person. Gold bullion is "pretty." It has played its role in history for some five thousand years. It's portable. I heard a story from a Jewish friend who got a ticket on the last plane out of Nazi Germany because he had gold coins stashed in his shoe!…so gold has a sense of drama about it. You couldn't do that with gold mining stocks. From an investor's viewpoint its buying power goes up and down just like the stock market, so it probably wont turn you into a millionaire, BUT IT'S A SORT OF INSURANCE AGAINST CATASTROPHE. On a small scale, I'd buy that.

  10. Robert Smith | July 30, 2013

    How do u see the silver prices DOING IN THE FULTURE ? I see silver being a better investment long term than even gold because of the stability in commercial usages has the overall same conductivity and even an easier breakdown factor for smaller usage !

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