Three Reasons to Own Gold Now

Release Date: 
Friday, September 26, 2014

Gold and Silver Prices

Gold prices hovered near nine-month lows on a strengthening U.S. dollar. “Pushing gold lower was a strengthening dollar. The ICE U.S. Dollar Index extended its longest winning streak in at least 28 years Friday, as it rose for an 11th straight week against a basket of major currencies. Investors have piled into the greenback in recent weeks, betting that the Federal Reserve is closer to raising interest rates, a move that would make the dollar more attractive to yield-seeking investors.” (“Gold Slides on Stronger Dollar, Narrows Gap With Platinum,” Wall Street Journal, 9/26/14.)

Gold finished the week at $1,220.40, up $3.20.  Silver prices closed the week down $0.13, finishing at $17.76.

Three Reasons to Own Gold Now

Forbes contributor Clem Chambers offered three reasons to acquire gold now.

“1. Price: Gold is priced near its average cost of product and below its margin cost of production for a significant proportions of its supply. Fundamentals for gold are in themselves a good reason to acquire. Never fail to buy an asset below its replacement value. Its rule 1 of investing. Gold is now around the cost of incremental production.”

“2. Diversification: To be diversified, an investor should have at least a couple of percent of their portfolio in gold. I dread to say 5%, because that it far more gold than many people would dream of having. In general, people are poorly diversified and often when they look back at the moments when they have lost more money than they care to remember it is because they held undiversified positions in instruments that went sour. Diversification is the only way to secure wealth and gold is a good ingredient for that.

“3. Value…when a financial instrument becomes well priced it is time to start acquiring it for the long term. Gold is in that zone, so it is time to start paying it increasing attention.” (“Three Reasons To Buy Gold Now,” Forbes, 9/24/14.)

Giustra: Gold Remains In Bull Market

Mining executive Frank Giustra believes the drivers which sent gold prices to $2,000 per ounce are still in existence and will drive current prices higher.

“‘All the reasons why gold went to $2,000 in the first place are still there, and in spades,’ he said during an interview with Kitco News’ Daniela Cambone at the Clinton Global Initiative annual meeting on Tuesday…‘Nothing has changed fundamentally to tell me in any way that one should divest of their gold position,’ he said. ‘I just think you have to have some gold in your portfolio because currencies are being devalued by money printing worldwide.’”

“Looking ahead, Giustra, who is also the CEO of Fiore Financial, said that he does not expect to see a robust U.S. economy once the Federal Reserve ends its quantitative easing program. ‘I think the accommodative policy that's been in place for a number of years now is going to have to continue in some fashion, and that's always good for gold…I think we're in the middle of a very long-term bull market in gold […] the situation hasn't improved, in many cases it's gotten much worse, so there is a reason to hold your gold.’” (“Reasons Gold Neared $2,000 Still In Place - Frank Giustra,” Kitco News, 9/24/14.)

Gold Prices Near Floor Due to Production Cost

Gold prices are approaching the production cost to mine gold offering a possible floor on prices.

“The price of gold, down more than a third in three years, is approaching the tipping point where the mining industry would see a spike in the number of producers reducing output or even shutting down operations. ‘$1,200 is a critical level. The industry has geared itself around $1,200,’ said Joseph Foster, portfolio manager at institutional investor Van Eck Global. ‘If it falls below that level, then there are a lot of mines around the world that are really going to struggle.’”

“While gold is also a financial asset that can benefit from uncertainty and inflation fears, some investors and executives say less supply cannot help but put a floor under bullion. Miners will remain loathe to invest in new projects at gold prices below $1,500, said Douglas Groh, a portfolio manager at Tocqueville Asset Management. ‘Two years from now end-2016, 2017 and even into 2018, the markets will recognize that there isn't new capacity coming on stream ... Certainly the gold price will jump,’ Groh said.” (“Gold price seen near tipping point for mine cuts, closures,” Reuters, 9/25/14.)

World Gold Council: Gold Remains “Valuable Portfolio Diversifier”

The World Gold Council’s latest report, Gold Investor: Risk Management and Capital Preservation, concluded there are three reasons why investors should include gold in their portfolios.

“Our research and analysis shows that gold is:

“A valuable portfolio diversifier. Gold has little correlation to all the major components of a typical investment portfolio in both good and bad economic environments – in stark contrast to other so-called diversifiers. In that sense, gold is a ‘true’ diversifier.

“A cost-effective hedge. Gold is less (and often negatively) correlated to equities and other risk assets during periods of systemic risk and usually less costly to maintain as a consistent component of a portfolio. This makes gold particularly relevant for investors looking to buy portfolio protection.

“Positively linked to economic growth. Economic growth lifts consumers’ incomes which, in turn, raise demand for luxury goods as well as money devoted to savings. Both of these trends have a positive effect on gold demand.” (“Gold Investor: Risk Management and Capital Preservation,” WGC, 9/14.)

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Goldline provides a wrap-up of the week's precious metals news along with important commentary on the American Advisor Week in Review audio program. Listen to the show below:

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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