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But the first half of 2014's gains aside, pressures shaping the yellow metal right now demand an allocation of gold stocks in a healthy investment portfolio.
In fact, Money Morning Chief Investment Strategist Keith Fitz-Gerald said in May that the case for owning gold has never been stronger.
"Many investors are asking themselves if now is the time to buy gold. I think that's the wrong question," Fitz-Gerald said. "What they should be asking themselves is if they can afford not to buy gold."
No. 1: Gold Mining Stocks Are Poised for a Surge
It's starting to look like a new bull is being born in commodities.
That's because we're starting to see real movement in most resources. For example, early in the year, there was a huge move in agricultural commodities. The PowerShares DB Agriculture ETF (NYSE: DBA) made a huge move, most of it in the month of February, from $24 to $29. It's up more than 8% year to date.
And that's good news for gold mining stocks.
"Higher commodities prices will prove to be a bounty for the miners and other resource producers," Money Morning Resource Specialist Peter Krauth told readers on July 7.
You see, as commodities prices were falling over the last three years or so, many gold mining companies took to costs with a machete and slashed wherever possible, to weather the storm for an extended rout in prices.
"Gold mining companies downsized staff, axed projects, and even rationalized selling non-core assets," Krauth said. "So now they are much leaner, and will be much more profitable as commodities prices rise again."
Increased activity in mining mergers and acquisitions underpins gold mining stock momentum. Recently, Goldcorp Inc. (NYSE: GG) got into a bidding war with Agnico Eagle Mines Ltd. (NYSE: AEM) and Yamana Gold Inc. (NYSE: AUY) in an attempt to take over Osisko Mining. Smaller deals have also emerged, with B2Gold Corp. (NYSE:BTG) committing to a friendly takeover, and Mandalay Resources Corp. (TSE: MND) acquiring Elgin Mining Inc.
"This is significant because it reflects a feeling of confidence and strength on the part of the mining industry," Krauth said. "And if I'm right about the prices of many – or even most – commodities having bottomed, then the likelihood that the cycle has troughed and is now starting to turn up has improved dramatically."
No. 2: Gold Stocks Are a Hedge Against Impending Inflation
Inflation has been heating up in the last several months. In May, consumer prices rose at more than a 4% annual pace. Prices for beef, pork, and other foods are soaring. Core inflation – prices less food and energy – after remaining fairly tame for several years, is also accelerating.
Americans could be facing inflation greater than 3% or even 4% for the rest of 2014 and 2015.
And abroad, the European Central Bank (ECB) announced a new policy on June 5 to promote lending and, ultimately, inflation in the Eurozone.
Inflation sends gold prices – and gold stocks – higher.
That's because precious metals tend to move in tandem with inflation. As the value of a currency decreases – which is an effect of inflation – the price of precious metals increases. A declining value of a currency means that it takes more of that currency to purchase an ounce of the metal.
Since there is fear of inflation in the United States, and there is a specific attempt to produce inflation in Europe, right now there is upward pressure on the price of gold.
"The medium and longer term for gold is very bullish," Krauth said after the ECB announced its move. "In fact, sentiment is rough in the precious metals space right now. But that only makes their future that much more compelling. Banks are accelerating their easing ever more."
Krauth isn't alone in this sentiment.
"Going ahead, economic data will guide gold prices," Jeff Sica, who helps manage $1 billion at Sica Wealth Management, told Bloomberg. The metal could see additional gains if the U.S. economy slips or geopolitical turmoil accelerates, Sica said.
Sharing that sentiment is Howie Lee, an investment analyst at Phillip Futures.
"This quarter [Q3], we expect gold to remain elevated or even possibly climb due to multiple uncertainties," Lee told Reuters. He added that uncertainties over the uneven U.S. economic recovery and geopolitical tensions will provide a cushion for gold.