Gold Prices
SPDR GOLD TRUST ETF
NYSE: GLD
Jun 18
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Last price132.13Prev Close133.77
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Change-1.64% Change-1.2%
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Open132.72Volume7,379,300
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Day Low131.53Day High132.96
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Bid132.12Ask132.13
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52 Wk Low131.0752 Wk High173.61
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Market Cap509,153ExchangeNYSE
Today
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Gold Prices: How to Climb the "Golden Staircase'
When U.K. subscriber John M. wrote in this week, he got right to the point.
Asked John: "What's happening to gold prices? Why are they dropping?"
For an answer, I speed-dialed Real Asset Returns Editor Peter Krauth - our resident expert on mining and precious metals.
Peter is based in Canada, which keeps him close to the natural-resource companies that proliferate north of the border. He gave me a detailed and insightful answer to John M.'s question.
And he recommended three ways to profit - including an ETF he says is perfect for first-time gold investors.
To explain what's happened with the "yellow metal" - and to project where gold prices will go next - Peter invented a pricing theory that he christened the "Golden Staircase."
"The bottom line, Bill, is that the price of gold has simply entered a consolidation phase - much like it has done numerous times since it entered this secular bull market back in 2001," he told me.
Gold futures were at $1,662.40 an ounce yesterday - well off the yellow metal's high. Here's why.
"If you think back, when gold hit its all-time high of $1,900 last August, we were in the midst of wild speculation that the U.S. government wouldn't resolve its debt-ceiling crisis," Peter explained. "A deal in Congress was reached in time, but Standard & Poor's went on to downgrade the nation's credit rating for the first time in history. Since then, there's been considerable apathy towards gold by the general investing public, pushing its price down about 13%. What's more, government-calculated inflation looks benign, taking away from gold's luster."
And here's where it gets interesting.
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Gold Prices Headed for $2,000 an Ounce
Gold prices this week picked up again but are still far from last year's record $1,920.30 an ounce, reached in September.
The most-active June contract settled on the Comex Friday at $1,660.20 an ounce, for a gain of 1.8%, or $30.10, since the April 5 market close.
Given the economic volatility in 2011, last year was a banner year for gold prices. Fears of global market turmoil helped push the yellow metal to record highs.
While the long-term bullish outlook for gold remains, short-term pressures have halted its steady climb.
"Gold has found more support recently, but it doesn't have all of the catalysts in place to be driven substantially higher yet," Suki Cooper, an analyst at Barclays Capital, told Reuters.
Here's why this dip isn't the start of a bearish gold year, but a chance to stock up before gold prices thrive and head to $2,000 an ounce.
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Why Gold Prices Should Thrive
Last week was a challenging one for gold investors. Gold prices have been on the downside.
Although the yellow metal has been on a spectacular 11-year bull run, recent strength in the economy has some thinking gold's heyday is over.
As I often say, investing, like life, is about managing expectations-even throughout gold's decade-long rise, price action over the short term can go both ways.
It helps to look at what happens after short-term drops.
For example, looking at the past decade of one-day 5% declines in gold, you can see that this event is pretty rare.
In 2006, gold dropped more than 5% in a day only two times. In 2008, there were three such events.
Another one occurred at the end of this February. Take a look:
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Buy, Sell or Hold: Buy the Dips in Gold (NYSE: GLD)
SPDR Gold Trust (NYSE: GLD) experienced a major pullback on Leap Day this week, dropping almost exactly 100 points on the day.
This happened while the European Central Bank (ECB) offered its second tranche of three-year Long Term Recapitalization Operations (LTRO).
The sell-off in gold on Wednesday is a related sign that liquidity is currently in demand.
But you only have to look at gold's big move up since the start of 2012 to know this stage of the move was unsustainable short-term.
It's why investors shouldn't be surprised by the pullback, and should use this latest move down to increase their long-term exposure to gold.
This dip is a buying event and nothing more.
The pullback in the price of gold also hit equities along with bonds and some other commodities.
Even so, it appears that the ECB has provided enough liquidity to fight off the near-term fears.
Once these funds begin to work their way through the system, I believe they will be bullish for commodity prices.
Over time, banks will eventually put that capital to work, with an eye toward generating a positive rate of return on it. One of those avenues will undoubtedly be gold.
Here's why, along with a bit of background.
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How This Indian Wedding Tradition Drives Global Gold Demand
An Indian wedding tradition dating back thousands of years is more than a simple cultural practice - it has become one of the biggest drivers of global gold demand.
In a Feb. 12 CBS News' "60 Minutes" report, correspondent Bryon Pitts took a look at how the Indian wedding tradition of draping the bride in gold jewels has propelled India to be the biggest source of global gold demand. India is now No. 1 in gold consumption of jewelry as well as physical bars and coins.
India accounts for about 32% of the global gold market with half of the gold Indians buy spent on jewelry for the 10 million weddings held there each year.
As a result, gold prices typically rise ahead of wedding season as families prepare.
"The demand for gold out of India is fundamental for the health of the industry," Ajay Mitra of the World Gold Council told Pitts. "If India sneezes, the gold industry will catch a cold."
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Gold Prices 2012 Forecast: How to Make Double the Gold Profits in the New Year
Despite a pullback from its all-time high of $1,923 an ounce a few months ago, gold is still trading in the $1,700 range. In fact, the glittering metal has gained 22% in the past 12 months.
What's more, I believe gold prices will eclipse $2,200 an ounce in the next year, and shoot beyond even $5,000 an ounce after that.
With the economy still in turmoil - and the U.S. dollar sinking even lower in 2012 (Take a look right here to learn how far the dollar will sink in our new report) - gold prices will continue to rise.
So there's obviously still time to get in on this once-in-a-lifetime bull-run, if you haven't already.
Of course, every investor should at least have shares of a gold-based exchange-traded fund, but if you really want to profit from the price surge, you ought to look at gold mining companies.
Let me explain.
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Don't Be Fooled by Gold's Recent Dip – We'll Still See $2,000 an Ounce in 2012
If you're concerned about where gold prices are headed after yesterday's (Wednesday's) bear-market buzz, don't be. This is just a brief pit-stop in what continues to be an epic bull-run for the yellow metal.
Gold prices fell below $1,600 an ounce Wednesday for the first time since October, settling down nearly 5% at $1,586.90 an ounce Comex division of the New York Mercantile Exchange (NYMEX). That's below the closely-watched 200-day moving average for the first time since January.
There are a few reasons for this slump: Panic over the Eurozone and its weakening currency, banks' need for cash, and year-end profit-taking have all taken their toll on gold this week.
Still, while gold prices may be stumbling right now, they are not headed for a long-term bear market - not even close. In fact, it's something our own gold and global resources specialist predicted months ago.
Money Morning Global Resources Specialist Peter Krauth said as far back as August that gold prices were due for a pull-back, so this minor blip isn't surprising - and it definitely isn't permanent.
"This is something I saw coming," said Krauth. "Back in late August, as gold was pushing $1,900, I told my subscribers it was due to pull back, and likely to trade in a range between $1,600 and $1,800, and that's exactly what we've seen so far. We could see a bit more weakness, but I think we're much closer to a bottom at this point."
Here's why.A Weak Euro and the Scramble for Cash
One of the biggest factors contributing to lower gold prices is the Eurozone and its increasingly weak currency. The euro fell Wednesday to $1.2998 against the dollar, its lowest level since January. That forced many traders into the dollar.
"As investors flee the euro, the "risk off' trade means they're falling back on the U.S. dollar," said Krauth. "A higher U.S. dollar, in turn, means lower gold because gold is priced in U.S. dollars."
Krauth said Europe's economic turmoil has forced the region's banks to hunt for more cash, which has led to more gold leasing transactions, further pressuring the precious metal's price.
"European commercial banks are desperate for cash," said Krauth. "They could well be "borrowing' central bank or other sourced gold to lend out simply to raise cash temporarily. Interestingly, gold lease rates just spiked back up on Dec. 7, the very same day we started that recent bout of gold price weakness."
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Gold Price Outlook 2012: Miners Will Shine as Prices Soar
Despite a pullback from its all-time high of about $1,920 an ounce set in September, gold is still trading in the $1,750 range. In fact, the glittering metal has gained 22% in the past 12 months.
What's more is that I believe gold prices will eclipse $2,200 an ounce next year, and shoot beyond even $5,000 an ounce after that.
So there's obviously still time to get in on this once-in-a-lifetime bull-run, if you haven't already.
Of course, every investor should at least have shares of a gold-based exchange-traded fund, but if you really want to profit from the price surge, you ought to look at gold mining companies.
Let me explain.
A Golden Opportunity
While gold prices have surged 22% over the past year, gold mining stocks have lagged curiously behind over that period.
The Amex Gold Bugs Index, a weighted benchmark made up of 16 of the world's largest gold and silver mining companies, began the year at 540, and after numerous troughs and peaks, we're back near those same levels.
Normally, gold stocks will leverage gold on a 2-for-1 basis, but in this case, we've seen miners move sideways as gold has advanced.
Yet with gold's price powering skyward, the gold miners have seen their margins expand, making them very profitable at current levels. That makes them absolute steals at these prices.
You don't have to take my word for it, either. Just look at what industry insiders are saying.
"A substantial disconnect has developed between the price of gold and the mining companies," said David Einhorn of Greenlight Capital. "With gold at today's price, the mining companies have the potential to generate double-digit free cash flow returns and offer attractive risk-adjusted returns even if gold does not advance further. Since we believe gold will continue to rise, we expect gold stocks to do even better."
Portfolio managers Michael Bowman and Allan Meyer of Wickham Investment Counsel Inc. concur.
"We are now finding a large number of gold stocks are hitting our value screens, something that has been unheard of in the past," said Meyer.
What else are experts noticing?
Well, as gold prices have risen and stayed high, the price/earnings (P/E) ratios of gold miners have been cut in half. That means the sector as a whole is at as compelling a value as it's been in three years. And with the price of gold set to rise still higher on the back of incessant money printing in the United States and Europe, these miners are only going to get more profitable.
How high is gold likely to go?
My own research tells me we should expect gold to easily reach $2,200 in 2012.
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