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1. Gold is undervalued: As of this writing, the spot price for gold is over $625.00 per ounce. The record high price for one ounce gold is $875.00, achieved in 1980. Factoring in inflation, the record high in today’s dollars is in excess of $2,150.00. Today's price does not reflect a true unencumbered equilibrium value. Experts predict a gold bull run well into the next decade.
2. Plunging stock market: When the current stock market corrects to a more reasonable price to earnings ratio as a result of the housing collapse, declining dollar and slowing economy, investors will look for alternative assets like gold for effective portfolio diversification.
3. Stagflation: Federal Reserve is pumping up as the money supply at a 10% pace in the face of growing unemployment, rising PPI and CPI indexes, record oil and energy prices and nearly all commodity prices. This combination of inflationary/recessionary effects has not occurred in over twenty years. As inflation builds, stocks and bonds will fall, while gold will continue to appreciate in value.
4. Demand fundamentals: The demand for gold is at near-record highs globally. The only aspect of the gold market not inordinately high is investment demand. When conditions raise investors' interest in gold, they will be greeted by a very tight market.
5. Supply fundamentals: Gold supply is low because the price of an ounce of gold had fallen below the cost to produce it. Contributing to this is the continued short selling and leasing of gold by central and bullion banks depressing gold prices artificially - the distortion in the market has now reached critical proportions - nearly 13 thousand metric tons of gold have been leased out and sold short. The gold, not dollars, must be returned to the source that leased it.
6. America's debt bomb: Everyone owes. Home equity and the savings rate are down because Americans have been using their homes as ATM machines. Credit card debt is up, and bankruptcies are being filed at a record pace. Total governmental debt stands at $50 trillion, or $166,650.00 for every man, woman and child in America!
7. Increasing weakness of the dollar: The fundamentals for the dollar are weakening. As the stock market declines, our existing ballooned current account deficit adds to the risk of a stampede away from the dollar. When this happens, the benefit to gold will be twofold: as the dollar value goes down, gold will go up, and foreign investments in the U.S. will decline. This indirectly raises investor's demand for gold.
8. World tensions: Unfortunately, the war in Iraq and several other potential trouble spots (i.e. Palestine, Israel, Iran, North Korea etc.) are starting to affect the financial markets and will continue to do so for the next few years.
9. America's mushrooming trade deficit: Our trade deficit is at unmanageable levels, which could lead to a protectionist backlash at the very least. Gold is excellent protection against any unforeseeable problems as a result of the trade deficit.
10. Rising commodity prices: Including gold, commodity prices have been rising for months. History has proven a disparity between commodity prices and gold does not last long. Continued record oil and energy prices will lead to inflation and higher gold prices.
Advantages
of Gold
Precious Metals
IRA |
