It's dipped to a six-month low, and investors are nervous. But as long as gold is attractive to both the fear trade and the love trade, hold on tight to your share of the yellow metal. Frank Holmes explains.
There are a lot of moving parts to the gold story so let's start with the biggest takeaway: Gold prices are facing only a temporary setback.
Longer-term, as the U.S. Federal Reserve and other central banks begin to wind down quantitative easing and, more importantly, begin to ease interest rates back up to more "normal" levels, inflation should begin to kick in and drive gold up to new highs, making the yellow metal a great long-term investment.
First, though, let's tease apart the various factors that currently are driving the price of gold lower.
Now we know what Russia has been doing all these years with all its oil mega-profits: investing in gold.
A Bloomberg News article Monday reported that Russia's central bank added 570 metric tons of gold in the past decade, making the country the world's biggest gold buyer. That amount is a quarter more than the world's second-biggest buyer, China.
The amount of gold Russia added to its stockpile is almost triple the weight of the Statue of Liberty, according to Bloomberg.
It certainly makes sense for Russia to add to its official gold reserves. Gold prices have gained about 400% over the past decade.
"The more gold a country has, the more sovereignty it will have if there's a cataclysm with the dollar, the euro, the pound or any other reserve currency," Evgeny Fedorov, a lawmaker for Putin's United Russia party in the lower house of parliament, told Bloomberg in a telephone interview in Moscow.
Legendary investor Jim Rogers sees now as a great time to load up on gold and silver coins - and he's not alone.
A record 7.5 million ounces of silver coins were sold in January as investors hunted for a safe haven investment.
"You can't get [silver coins]. They sell out," Rogers, who owns a rare 2013 silver coin, said on Yahoo! Finance's "The Daily Ticker." "Several mints have run out of coins because everybody's worried about the future of the world."
And 150,000 ounces of American Eagle gold coins were sold in January, the highest monthly total since July 2010.
"Gold has been up 12 years in a row which is extremely unusual for anything," added Rogers. "A lot of speculators are rushing into gold right now. I'm not rushing into gold, but I'm certainly not selling it. If it goes down, I'm buying more."
You see, currently China's gold investors have few opportunities to play rising gold prices, which they want to do increasingly to hedge against risk and inflation. Most buy gold bars and notes to bet on higher gold prices.
But they will soon have more options.
The China Securities Regulatory Commission on Jan. 25 announced the country's rising gold demand required diversified investment instruments. It announced provisional guidelines for gold exchange-traded funds (ETFs), which have been prepared for launch over the past few years and will be made available soon.
The CSRC said that the gold ETFs would be invested in the spot contract traded on the Shanghai Gold Exchange and up to 10% on other products.
In the future, the funds could be opened up to futures contracts.
"Later on, we will further open up the market and quicken the steps to integrate into the international market," Xie Duo of People's Bank of China said. "We should actively create conditions for the gold market to become integrated with the international gold market."
Here's how this news is bullish for gold prices.
Renowned bond investor Bill Gross, the manager of PIMCO's Total Return Fund, the world's largest bond fund, just shared his top investment picks with Barron's. Leading the savvy investor's short and selective list was gold.
Why is a bond bull keen on investing in gold?
It's because Gross sees gold as a stellar inflationary hedge as global central banks attempt to reflate their economies.
Gross explained that while it looks like loose monetary policies and the deluge of dollars will continue for a while, at some point both will have to stop and "when all this money printing by central banks ends, it won't be pretty."
Gross sees trouble brewing in the artificially-priced U.S. Treasury market.
"The Fed is buying 80% of the Treasury market today. It is remarkable to think that when the Treasury issues debt in the trillion-dollar-plus category, the Fed ends up buying most of it. The Treasury sells it to banks and primary dealers, who sell it back to the Fed at a higher bid," Gross explained.
"This is very different from the free-market capitalism we've come to know. And it will continue until inflation exceeds the upper end of the central bank's target of 2.5% or, by some miracle, we get real economic growth," Gross continued.
The artificially priced bonds leave investors to question if investing in them is worth the slender reward, given the paltry yields from a bevy of bonds except high-risk junk bonds.
There are plenty of reasons for you to have some gold stocks in your portfolio.
Governments are stockpiling record amounts of the shiny metal. Mints are pumping out new coins as fast as they can. And the Fed under "Helicopter" Ben Bernanke is wallpapering the world with greenbacks, pumping out $85 billion a month until...well, who knows when?
But there's more.
The Europeans have joined the party by bailing out their weak sisters with hundreds of billions of euros.
And the Bank of Japan just announced a $1.2 trillion bond purchase program for 2013 and $150 billion per month after that - almost twice the size of the Fed's folly.
Now the yahoos in Washington are threatening to spill more blood over the debt ceiling.
All this spells big upside for gold prices in 2013...and the companies that produce gold.
After spending more than 50 years in foreign hands, Germany's gold is finally going home.
The Bundesbank (Germany's central bank) is the second-largest gold holder in the world. And it wants at least half of its gold to be held in its own vaults. That's going to mean moving 54,000 bars of the shiny metal.
But why does Germany want its gold back, and why now?
Part of it has to do with pressure from a grassroots group led by a group of economists, business executives, and lawyers, along with the German Precious Metals Association, who have put together a "Repatriate our Gold!" campaign.
But that's only part of the story...
But that certainly has changed in recent years.
In 2012, the world's central banks added the most gold to their reserves since 1964. Net official gold purchases added up to 536 metric tons, a gain of 17.4% from the previous year according to a report from Thomson Reuters GFMS. The estimate from the World Gold Council for such purchases is similar at 500 metric tons.
Central banks are forecast by GFMS to purchase 280 metric tons in the first half of 2013 alone.
That's good news for anyone investing in gold.
When it comes to gold and gold miners, many investors leave "the driving" to active money managers, who are supposed to understand these specialized assets and the global trends affecting them. But with these charts, you can know what they know right now. Check it out.
Investment powerhouse Goldman believes gold prices will log impressive gains over the next three months as the debt ceiling debate takes center stage on Capitol Hill. The bank is advising investors to position portfolios ahead of upward moves in the precious metal.
"We see current prices as a good entry point to re-establish fresh longs," Goldman analysts Damien Courvalin and Alec Phillips wrote in a Jan. 18 report.
The bank reaffirmed its three-month price target for gold of $1,825 an ounce. (Gold was trading at $1,695.20 in New York Tuesday.)
"The uncertainty associated with these (debt-ceiling) issues, combined with our economists' forecast for weak U.S. GDP growth in the first half of 2013 following the negative impact of higher taxes, will push gold" to the three-month target, the report stated.
The Goldman strategists pointed out six instances between 1996 and 2007 when the country hit the debt ceiling and the Treasury responded by using its muscle to execute "extraordinary measures" to keep the country afloat and running.
Gold prices rallied some 10% in half of these instances in the month prior to the debt-limit increase.
Expectations for gold prices just grew brighter due to a recent outlook on production numbers.
Gold producer Iamgold Corp. (NYSE: IMG), which has mines in Canada and Mali, forecasts gold prices will soar to a record $2,500 an ounce as global output peaks and ore grades decline.
Grade is the relationship between quality, tons, geometry and depth that indicates if a gold find can be extracted at a cost that makes doing so profitable. High grade is key in a gold deposit.
Iamgold CEO Steve Letwin told Bloomberg News in a Jan. 10 interview that the industry has exploited its best-quality gold reserves and as a result is tapping lower-grade and higher-cost deposits.
In fact, he sees this as a sign of "peak gold" - when the maximum rate of global gold extraction is reached.
"I really think we are at Peak Gold. Nobody has seen the kind of production profiles they thought they were going to see," Letwin explained.
What is Peak Gold?
After peak gold is reached, there's a terminal decline in the rate of production.
The "peak gold" theory mirrors the "peak oil" theory, which maintains the earth holds a finite amount of crude, and production will eventually outstrip supply.
The peak gold phenomenon was actually spotted several years back.
Barrick Gold (NYSE: ABX) CEO Aaron Regent told The Daily Telegraph in 2009 at the Royal Bank of Canada's annual gold conference "there is a strong case to be made that we are already at peak gold."
"Production peaked around 2000 and it has been a decline ever since, and we forecast that decline to continue. It is increasingly difficult to find ore," Regent said.
In 2001, the world saw what was believed to be record global gold production of 2,649 tons.
And what has happened since then in gold production supports the peak gold theory...
The recently publicized move by the German central bank to bring its gold home is sending a major message about trust in the United States.
The bank holds 45% of its 3,396 tons of gold in the vaults of the Federal Reserve Bank in New York, and wants to reduce those holdings to 37%. It also plans to take back all of its 11% of holdings currently stored at the Banque de France in Paris.
The immediate reaction to the German central bank's decision to repatriate some of its gold was to assert that the Bundesbank no longer trusted overseas central banks to look after their gold.
The German Federal Court of Auditors (Bundesrechnungshof) has ordered the Bundesbank to audit its gold reserves "because stocks have never been checked for authenticity and weight."
Prior to that, the Bundesbank had simply relied upon written certification from the central banks where its offshore gold is stored that the correct amount of gold is actually in the vaults and is of the appropriate fineness.
What's more, samples of gold from the Fed and the Banque de France will be melted down and tested for fineness or quality.
Suppose Germany's gold isn't all it is supposed to be?
The "full faith and credit" of the United States would certainly be called into question.
After hitting its 12th straight year of new highs, gold prices got off to a bumpy start in 2013.
"Dr. Doom" Marc Faber even came out Tuesday with a reduced price prediction for gold.
In a CNBC "Squawk Box" interview, Faber said, "I don't think [gold] will go up right away, and we maybe have a correction of 10 percent or so on the downside."
Faber had also estimated a gold price range in his JanuaryMarket Commentary of "... perhaps down to between $1550 and $1600."
But any gold price correction would be a short-term move. Even Faber admitted central bank action is a reason to bet on higher gold prices for the long term.
That's why investors should look at any price correction in gold as an opportunity to stock up.
By Thursday, the yellow metal jumped 1% after the European Central Bank left interest rates the same and the euro rose against the dollar. The February gold contract jumped $20.90 (1.3%) to $1,676.40 per troy ounce.
It was chained to a display table and kept safe by an armed guard. At the time, in 2005, the bar was worth $220,000.
Today, the same bar is worth $549,200. In just eight years, gold prices have jumped by 150% -- and that's even with a 27% drop from the peak of $1,900 in 2011.
But it's not the eternal fascination with gold that has boosted the price. With growing levels of worldwide uncertainties, mounting inflation risks, and government distrust, people are clamoring for gold primarily as insurance.
According to the World Gold Council, 2011 saw gold bars and coins reach nearly $77 billion in sales, versus 2002's $3.5 billion. And in November alone, the U.S. Mint's sales of the popular American Eagle coins jumped 131% in the wake of the election.
Editor's Note: Right now, four separate indicators are saying gold is set to surge. Any one of them is bullish on its own. But when all four signals flash at once...
With the market for gold growing at a feverish pace, it's now more important than ever to know that your gold is the real deal - especially now that gold has begun to show signs of a strong rebound.
Gold counterfeiting is nothing new. In fact, just recently there were reports of fake gold bars from China turning up in New York. Instead of gold, their centers were stuffed with tungsten.
But rest assured there are a number of methods you can use to mitigate the risks of ending up with counterfeit gold. Some are simple, quick, and inexpensive. Others are more elaborate, detailed, and not so readily accessible.
Here are seven ways to find out if the gold you own is real: