Buying into a gold ETF is one of our top recommendations for 2016, as Money Morning experts remain extremely bullish on gold prices.
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I love gold right now, not despite, but because of everything that's happened to it this month...
Now, it's true that the "race to $1,000" triggered by the July 20 Asian bear raid appears to have the yellow metal on the ropes.
Gold's hard-and-fast tumble below $1,100 an ounce last week means some investors may be tuning out the yellow metal, or suffering from gold "burnout."
But ignoring it is a huge mistake. It has been and always will be one of the best stores of value, and it's a crucial hedge against economic upheaval. It's a must-have holding.
Last Monday's "bear raid" in Shanghai brought gold down to 13-year lows before settling at five-and-a-half year lows, and it's absolutely vital that we know when this downward pressure will stop so that we don't "call a bottom" too quickly.
The turmoil in Europe over whether Greece will be forced out of the Eurozone has been a growing concern for investors as the crisis has worsened in recent weeks.
Sure, politicians and Greece's creditors might find a short-term solution any day now, but we all know what happens when you "kick the can" of debt down the road... the problem usually gets worse.
"If you don't own gold, you don't know history..."
Those words were uttered recently by Ray Dalio, the billionaire founder of Bridgewater Associates, the single-largest hedge fund on the planet, with a whopping $170 billion in assets.
Dalio has produced almost 15% annually for over two decades, and now he's warning anyone paying attention that it's time to own some gold. He believes there's just too much risk in not owning gold today.
It may yet be underpriced, but just 1 ounce of gold is still rather expensive. Such costs could keep you from allocating capital to this very necessary hedging investment.
Buying shares in gold ETFs can help limit those costs, as it doesn't require you to buy the equivalent of 1 ounce of gold at about $1,185.
The SPDR Gold Trust (NYSE Arca: GLD) ETF is the world's largest gold-backed exchange-traded fund. The GLD ETF is a good way for investors to collect some extra gold profits without the hassle of physical gold buying.
And with gold prices forecast to rise over the long term, the GLD ETF will rise as well.
Start the conversation
Gold is on a tear. It's rallied six straight days and headed for a seventh today. Yesterday (March 25) it closed at a three-week high of $1,197 an ounce.
Shares of the SPDR Gold Shares (NYSE: GLD) ETF have also posted gains lately on gold's rise. GLD ETF is up 3% in the past five days, while the Dow has slipped 0.7%.
While investors were pulling millions of dollars out of gold funds last month, another commodity was attracting money like a magnet. And despite a gain of 20% since June, many see it as undervalued. Find out what Money Morning Global Resources Specialist Peter Krauth calls "gold on steroids"...
I put that question to Real Asset Returns Editor Peter Krauth last week.
You see, there's a lot of interest in investing in gold right now. Or perhaps I should say that there's a lot of interest in what gold might do.
And you can certainly understand why.
From its November 2008 market lows, the SPDR Gold Trust (NYSE: GLD) - the No. 1 proxy for the "yellow metal" - rose as much as 158%, reaching its peak in September 2011. But it's down about 13% since that time (though it's up 5% year to date), and a lot of folks are wondering what gold is worth, and how they should play it.
Wall Street has grown more tepid on gold, with many of the investment banks ratcheting back just a bit on their target prices. But most also see prices heading up to and beyond the $2,000 level in 2013, meaning they see a potential gain of 22% or better.
Peter's target price is a bit more aggressive: He sees gold trading as high as $2,200 an ounce - 34% above current prices in the $1,640 range.
I've worked with Peter for several years now, and admire the way he works.
He based himself in resource-rich Canada in order to be closer to the many companies that he covers. And he's made a number of truly superb market calls: In September 2010, for instance, when silver was trading at $19 an ounce, Peter told investors the metal was a "Buy" - and we then watched it soar to a high of $48 (a 153% windfall).
So when I decided to bring you the latest insights on gold - and some recommendations, as well - I went to Peter.
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.
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.