Gold Prices: A Chance To Stock Up Before Prices Head To $2,000 an ounce (GLD, IAU, DZZ, PHYS, NEM)
Money Morning: Gold prices are still far from last year’s record $1,920.30 an ounce. Given the economic volatility in 2011, last year was a banner year for gold prices. Fears of global market turmoil helped push the yellow metal to record highs.
While the long-term bullish outlook for gold remains, short-term pressures have halted its steady climb.
“Gold has found more support recently, but it doesn’t have all of the catalysts in place to be driven substantially higher yet,” Suki Cooper, an analyst at Barclays Capital, told Reuters.
Here’s why this dip isn’t the start of a bearish gold year. Instead, it’s a chance to stock up before gold prices head to $2,000 an ounce. (Want to know the best way to profit from soaring gold prices this year? Take a look at our latest special report today. It shows you how to get daily market information and specific recommendations in gold… silver… penny stocks… Asia… and biotech, to name just a few. Find the report right here.)
The Fed, India, and Gold Prices
For the next three months, the U.S. Federal Reserve is focused on a stabilizing U.S. economy and low inflation. In fact, the Fed’s most recent forecast cooled talk of more monetary stimulus (or “quantitative easing”).
The Fed expects U.S. economic growth to progress at a steady pace throughout the quarter. With moderate expansion rather than rapid growth or deflation, there’s no need to curb borrowing, and Federal Reserve Chairman Ben Bernanke plans to keep interest rates near zero.
This bodes well for the U.S. dollar, and what’s good for the dollar is often bad for gold prices.
It’s no secret that a weakened dollar sends investors running to the real value of hard commodities. A stronger dollar does the inverse: It causes the big investors to be less cautious with regard to investments in liquid capital, creating a dip in gold prices.
Lagging Indian imports have also contributed to lower gold prices at the beginning of this quarter.
India is the world’s leading consumer of gold. Last year alone, according to the World Gold Council, gold imports rose in that nation to a record high of 969 tons. But this year imports were down 55% in the first quarter due to a proposed tax on gold.
Indian jewelers protested the tax, finally convincing the government to back down. Gold sales are already picking back up in the world’s largest gold market.
And the important Indian wedding season, which single-handedly pushes gold prices higher each year, is still to come.
Gold Prices Nearing Bottom
With India’s market disruptions and the Fed’s economic outlook, gold prices will remain flat – or even slip a bit more – before regaining momentum.
Thomson Reuters GFMS agrees with this assessment. The group released its annual gold market survey recently and predicted gold would touch its yearly low in the next few months. But after the current dip, gold will climb even higher, hitting a record $2,000 an ounce.
“Investors are somewhat disinterested in gold, but not disillusioned,” said Philip Klapwijk, head of metals analytics at GFMS.
Klapwijk cited Eurozone debt concerns (especially about Spain), future Federal Reserve stimulus measures, and high oil prices as triggers for a renewed interest in yellow-metal purchases this year.
This means gold’s current dip is a buying opportunity before the precious metal rebounds.
Action to Take
Today’s discounted gold prices won’t last much longer. But investors who want to buy into gold for the first time, or want to increase their gold holdings while prices are low, have a lot of options to choose from.
Money Morning Global Resources Specialist Peter Krauth recommends several ways to buy into gold for investors of different risk tolerances:
First, if you’re a newcomer to the gold market – or you are somewhat risk-averse – Peter suggests the physically backed Sprott Physical Gold Trust ETV (NYSE:PHYS).
Run by legendary gold and silver trader Eric Sprott, PHYS is one of the safest and easiest ways to buy into the gold market.
Unlike an ETF that tries to mimic the performance of its underlying asset, Sprott’s trust holds approximately 1.4 million ounces of physical gold bullion. Investors who buy into PHYS are buying real gold, not just shares.
In fact, if you own enough shares to equal at least one full bullion bar, you can take delivery of your gold (your gold – doesn’t that sound great?) almost anywhere in the world.
If you’re game for somewhat more leverage, Peter likes Newmont Mining Corp. (NYSE:NEM). This 91-year-old company is one of the world’s largest gold companies. It’s currently yielding a healthy 3%. It runs a stable business with well-diversified operations in seven different countries – the U.S., Australia, Peru, Indonesia, Ghana, New Zealand and Mexico.
And best of all, the company’s dividend is linked to the price of gold, Peter said. That means, as gold moves higher, so will your dividends.
If maximum profits are your goal, Peter has one more play. And this one is his favorite. It’s a gold streaming company that’s risky, but worth it. The stock price is already moving up fast. It has gained 63% in the last four months, alone.
This company is a penny stock, with a market cap of less than $650 million. That means bigger potential profits for those who get in early. And Peter gives all the details on this new gold play in the latest Money Morning Private Briefing report: The Five Stocks You Have to Own This Year. To get this report and learn more about Private Briefing, go here.
Related Tickers: SPDR Gold Trust (NYSEARCA:GLD), iShares Gold Trust (NYSEARCA:IAU), Sprott Physical Gold Trust (NYSEARCA:PHYS), PowerShares DB Gold Double Short ETN (NYSEARCA:DZZ).
We’re in the midst of the greatest investing boom in almost 60 years. And rest assured – this boom is not about to end anytime soon. You see, the flattening of the world continues to spawn new markets worth trillions of dollars; new customers that measure in the billions; an insatiable global demand for basic resources that’s growing exponentially; and a technological revolution even in the most distant markets on the planet.And Money Morning is here to help investors profit handsomely on this seismic shift in the global economy. In fact, we believe this is where the only real fortunes will be made in the months and years to come.