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Gold surged over 60% in 2009, hitting new highs practically every week.
But, who cares?
We haven't seen anything yet. This is just the beginning of one of the biggest gold rallies in history.
Gold will easily hit $2,000 this year. That's a 73% gain from current levels.
But, make no mistake... Like any other bubble, this one will also eventually pop. So the time to get into gold is now.
It's going to be a wild ride. So hang on and get ready to make a fortune on gold in 2010.
Gold's Only Halfway to Its True High
As gold continues to shatter new highs, analysts and pundits have started to wonder if gold is peaking. But the reality is that gold has barely gotten going.
Its 1980 peak of $875 is equivalent to $2,400 per ounce today - more than double the current price. And there's nothing holding gold back from hitting those numbers.
The Federal Reserve's loose monetary policy has put the dollar under duress. The central bank has pumped more than $2 trillion into the U.S. economy since the financial crisis began over two years ago. It lowered the benchmark Federal Funds rate to a record low 0%-0.25% range and it has stepped up purchases of U.S. Treasuries and mortgage-backed securities.
As a result, the dollar tumbled about 20% against the euro in the past year. The Dollar Index - which measures the greenback against the euro and five other currencies - fell to a 15-month low earlier this month.
With the dollar in freefall, central banks and hedge funds have sought shelter in hard assets, particularly gold.
"Everything is pointing to the price of gold going higher," said Mike Sander, an investment advisor at Sander Capital Advisors.
Global Demand Will Push Gold to $2,000
One catalyst of gold's rally happened in early December when the International Monetary Fund revealed that it sold 200 metric tons of gold to the Reserve Bank of India (RBI) from October 19 to 30. This purchase was equivalent to 8% of the world's annual mine production and doubles India's gold holdings.
Analysts believe India's highly publicized purchase will spawn a chain reaction in which other countries and investors ramp up their gold purchases.
"This is a landmark trade," said Jonathan Spall, a director at Barclays Capital, told the Financial Times. "Central banks are conservative institutions and India's move is a sign for other central banks and sovereign wealth funds that were contemplating buying gold."
And, with 203.3 metric tons still on sale at the IMF, don't be surprised if China decides to bulk up on gold too. China, the world's sixth-largest holder of gold, has increased its reserves by 76% since 2003.
It's clear that worldwide demand for gold is clearly on the upswing. However, just as that is happening, supply and production for the yellow metal are falling.
Annual worldwide mine production of gold has decreased by nearly 8% since 2001, even as the price of gold has tripled.
Meanwhile, investment demand for gold remains strong, surging 46% in the second quarter of 2009 over a year ago, according to the World Gold Council.
What's more, a number of the larger hedge funds are beginning to invest in physical commodities, instead of futures. They're worried that the U.S. government will put position limits on futures. This is a big deal because this further limits the supply of gold and other commodities.
In short, everything is working together to create a major bull market for gold.
When Will the Bubble Pop?
Consider the amount of money sloshing around the world right now - China's $2.2 trillion in reserves, India's $285 billion in reserves, all of the money in central banks throughout the Middle East. If all the serious money charges into gold and gold really gets going, you'll see a tremendous spike in prices.
But, everyone who says that gold will hit $2,000 in five years is wrong. It will be back down in 5 years. If it's going to $2,000 - and almost every analyst thinks it will - it will get there in 2010.
Everything will turn around when central banks start taking monetary policy seriously, and they won't do that in a hurry. They won't turn off the money taps until consumer inflation rises. But when inflation does rise, the central banks will react quickly and forcefully - driving up interest rates dramatically. And, suddenly, gold won't seem so attractive anymore.
Gold's bull run is a bubble, just like all the other bubbles. Except this is more of a bang than a bubble, because it's taking place so quickly. So, keep an eye on inflation and those central banks and be prepared to get out of the bubble before it pops.
How to Profit from the Gold Bubble
The time to take advantage of gold's historic rise is now... before prices come tumbling back down. Here are four ways to make a killing on the gold rush:
Market Vectors Gold Miners ETF (NYSE: GDX): Gold miners benefit disproportionately from a rise in the price of gold, because their production costs are fixed. This means that miners are a more-leveraged way to play gold than the metal itself, particularly since surging speculative demand can increase mining companies' Price/Earnings (P/E) ratios.
Barrick Gold Corp. (NYSE: ABX): Barrick is the largest and financially strongest gold producer, with a market capitalization of $43 billion, reserves of 124.6 million ounces of gold (plus copper and silver), and operations in North America, South America, Australasia and Africa.
Yamana Gold Inc. (NYSE : AUY): A growing gold producer with a $6.8 billion market capitalization that made an unexpectedly good profit in the fourth quarter of 2008, Yamana is expanding both production and reserves (currently 19.4 million ounces) with operations in Canada and Latin America. Its expansion magnifies the likely potential benefit from an increase in gold prices.
Invest in Gold-backed Dollars: Did you know that you can turn your drooping dollars into Pure 24-Karat Gold? This can multiply your money each time gold rises. Use this gold like regular currency and potentially double your purchasing power in the next 6-9 months. "Gold dollars" are the future of money - and those who start using them now could see the payoff long before the mainstream catches on. Find out how you can be one of them, here.
I think you've lost the plot or your pumping your latest investment promotion.Come on Martin;Volckener now has the Presidents ear and the party could be comming to an early conclusion.Futhermore the European union could soon be on the ropes,something which you casualy seemed to overlook in a previous artical you wrote about potential defaulting countrys,Grease wasn't even mentioned let alone spain or portugal.
1) A great percentage of gold is bought with cash not leveraged like housing
2)Gold(and silver) is the only currency (not commodity) that can't be printed at will
3) The US debt load is passed the point of no return, inflation is the only way out
4)Central banks have reversed policies from selling to buying gold (with dollars)
5)Mine output is continuing to fall behind demand
For the perceived "gold bubble" to "pop" the Fed would have to deflate the US money supply and the too-greedy-to-fail banks will not allow that to happen. Gold may lose its value after the USA destroys itself, but until then gold will rise as long as the Fed continues to inflate and the US govt continues to borrow…infinitum
Gary I think you need to work on your spelling. =:-)
Luke is correct. I always discount some one like Gary.
@Luke
My spell checker doesn't seem to have a problem with your smiley face.
Regarding the comment regarding China buying Gold at these higher levels of 1100 $ the question one has to ask oneself is would it be more beneficial for them to buy their own Gold stock/production at lower levels since their mines are relatively new and the associated cost of production per ounce could be around 400-450$ per ounce maximum……China being a manufacturing oriented country could also diversify out of dollar into manufacturing assets like crude, copper , base metals rather than bullion as they could be obtained at relatively lower levels…. As far as demand goes the ETF gold demand seems to be unable to sustain higher levels of 1134 tonnes and has fallen considerably for the second consecutive time……as far as the supply side goes one did see a huge rise in prices of Gold last year on the back of Dehedging by Barrick Gold which saw Gold hedge book coming down from almost 1000 tonnes to 300 tonnes… considering that the hedge book has winded down considerably one would not see the pressure of Dehedging in 2010 which one saw in 2009…..at higher levels India being the biggest consumer had reduced its consumption levels which saw 2009 consumption falling to around 230-250 tonnes from 850 tonnes in 2008 which reflects India and other major physical gold consuming countries lack of willingness to buy at higher prices….another reason supporting bearishness in the prices of Gold would be the removal of loose monetary policies by emerging economies like China, India,,,,which was indicated by china hiking its CRR rate last week….and also Australia hiking its rates in the last 2 months as these countries face a threat of inflation…..
-Regarding the Feds loose monetary policy it would start withdrawing the same sooner than increasing Fed rates as major of the Big investment banks in order to reduce Fed control have started paying back TARP and FED money….
-The Dollar has shown signs of recovery by recovering from 1.50 to almost 1.42 to the dollar
– Regarding the thought about China buying the remaining IMF gold the question would be whether China should buy out its own production of Gold which could be obtained at 400-450 $ an ounce or should it beef up its holdings of hard assets like base metals and energy rather than Gold as it is a manufacturing based country.
-Worldwide Gold production has declined since 2001 as during the 90's Gold faced a scenario of falling prices hence no fresh investment being made in Gold mines… however the scene seems to have changed since Sept 1999.
– Another point to note being despite Gold ETF holdings of SPDR being at almost an all time high of 1,234 tonnes Gold failed to sustain at higher prices.
-Regarding the issue of Central banks taking loose monetary policies seriously Emerging economices like Australia has already hiked interest rates in the last three months.
-China has already hiked interest rates and is looking at withdrawing liquidity to prevent creation of asset bubbles and higher inflation levels.
– Regarding the case of Dehedging one has seen record prices of gold in 2009 at 1226 $ as mines like Barrick scrambled to cover their hedged positions. However, the outstandging hedge book which was at 1000 tonnes approx in 2008 ending has reduced significantly to approx 300-400 tonnes reducing the pressure of dehedging on this years prices.
-Regarding demand from countries like India demand for Gold from 850 tonnes approx in 2008 one has seen the same fall to 225-250 tonnes in 2009 in India as Indians withheld their purchases of Gold at higher price levels and one also saw record scrap sales in India and other consuming countries like the Middle East.
Martin,
I usually find your analysis spot on. This time I find it fairly weak.
I'm not a gold bug per se, but I do think gold is going much higher than 2k and will take much longer than 12 months to do it. Couple points to make:
1. Next wave of mortgage resets hitting now through 2Q 2012. Of course this means massive defaults and stress on the financials. There will be ZERO chance the Fed raises rates before 2012 in the face of this. I could see your $2k as the top if they raised rates immediately, effectively choking liquidity and causing a market crash. But that won't happen.
2. Dow-Gold ratio not close yet. We're still over 9.3 and we will see a bare minimum 2 before it is all over, but most likely near 1. Where that will be? No one really knows. But it will take at least 2-3 years at a minimum.
3. Gold is consolidating back to the trendline–not showing any signs of peaking yet. In 1979, gold nearly quadrupled to reach it's speculative high. Assuming history rhymes, that would put gold at $4k+.
4. Inflation-adjusted high for gold is bogus because it uses Clinton-era CPI changes. Using pre-Clinton CPI, the inflation-adjusted high would be about $6,000 today.
My best guess for where this ends is about $3500-$5000 sometime after 2012 but potentially as late as 2020 and potentially at astronomical numbers that should make every American sweat–not salivate–due to the societal consequences.
So, can you tell me when HL, which you pushed so hard, is going to recover, oh wise one?
It certainly cost me plenty.
I am concerned with the apparent halt to the dollar swaps, which the US used to hide their purchases of their own Bonds… if that does stop or slow dramatically, who is going to buy all of this trash? If it is sold in an open REAL market, then the rates are going to spike and soon… leading to downward pressure on risk plays (equities and gold). Of course, this could lead to an event as well, as there is no way to even pay off the interest on the huge debt without printing more and more and more… but if the bond sales collapse (which they have already but for our own buying of our own garbage through foreign currency swaps), the it hits the fan and rates will have to boom to get any buyers… Ron Paul's bills are great and would be very bullish for gold, but who thinks they will not be torpedoed by the Fed and our president (BO)?
i am 40% gold 60% stocks (mainly asian) and i am still bullish about gold at its current $1200 standing. The reason is very simple – interest rates are too low to make me consider putting money into bank deposit so the questions remain either stocks or gold and the answer i am expecting second wave of recession with stocks going down in europe and US which will cause many investors to turn to gold
I have never owned Gold in any form – at 81 have looked at it many times but have difficulty choosing whether to buy Gold Bars or stocks – What would you suggest.