LAS VEGAS, NV -- I'm writing from the Las Vegas Precious Metals conference where we have seen a rather slow conference.
Since this is always the first conference after the summer doldrums, I was hoping for a better turnout and a bit more excitement leading into the busy fall season.
All in all however, the consensus vote amongst the majority of newsletter writers and analysts is that we are going to see a surge in the precious metals prices and that mining stocks should do well in the last quarter.
I have to agree.
Below I've listed the seven reasons why I think gold is headed higher for the balance of this year and the foundation for the appreciation I see in coming years.
Joseph Schumpter once said, "The modern mind dislikes gold because it blurts our unpleasant truths."
The truths that he was talking about have started to show up in alarming statistic data, and have begun to make a lot of people nervous about what they see for the future.
Global mine production of new gold decreased by more than 5% (the largest decrease in over 60 years), while gold demand rose by more than 7%. As the world of paper money suddenly realizes how vulnerable it is and decides to seek shelter in gold, their simply won't be enough metal to go around at current prices to meet such a demand. In my opinion this one factor alone could propel gold well over $1,000 an ounce in the next 12 months.
2. Unsustainable Debt Structure of the U.S. Government
Over the past five years, the level of trade and government debt has soared. The debt now exceeds the accumulated debt of the previous 220 years of American History. This scenario will continue to worsen and only put further pressure on the dollar which will in turn convince more and more people to move into gold to protect their savings and hard work of a lifetime.
3. Growing Uncertainty about the World's Geopolitical Situation
The current wars and rumors of wars scenario that are in unfolding worldwide appears to be getting much worse. This in turn is driving more safe haven buying. A look down the list of current geopolitical uncertainty is one daunting list. How long can America last without being tainted by its affects? Again, more and more people are starting to move into gold for protection against such risk. It would be hard to imagine that things will suddenly get better on this front, especially now that it looks like countries are scrambling to secure oil interests.
4. Increased Central Bank Buying
Central banks of the world have been net sellers of the noble metal for literally two decades. This has recently changed and we have switched to a net buying situation amongst the world's central banks. This will put a lot of pressure on the physical metal price this fall and into the next few years. Look for major new buyers to come into the market in force this fall and early 2007.
5. Increased Retail Buying
The 1.3 billion Chinese citizens that can now own physical precious metals are also starting to buy as a result of their government educating them about the risks of fiat currencies, particularly the dollar, which looks like it is in for a major devaluation. This amount of retail buying from China and elsewhere could really be a big factor moving forward.
6. The Pathetic Outlook for the U.S. dollar
Growing concern about the dollar in financial markets and among smart money investors is increasing dramatically. This concern stems mostly from the debt, trade imbalances and foreigners not wanting to purchase any more U.S. paper. The biggest supporters of our debt the past twenty years have recently begun to fade. They see the writing on the wall for the U.S. dollar and simply want to diversify away from dollar risk. Could the U.S. lose it benchmark currency status? Most definitely. And again this is very good for gold.
7. Gold is Moving Higher Against all Major Currencies
While gold is priced in U.S. dollar terms, a real bullish signal is that gold is now moving higher against all major currencies. So if people thought that they would switch out of the dollar and into another currency, it looks like they will only be frustrated. It now appears that gold is becoming money once again and offering investors protection as the safest money known to mankind. This trend is growing amongst the sophisticated investor class and the average Joe on the street.
Look for gold to make another new high before the end of the year taking us somewhere between $800 and $900 on ounce.
- Greg McCoach
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