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Where is Gold’s Price Headed?

“Well respected investor Jim Rogers has warned investors that gold might plunge to $700-800 before this is all over. His report stated that there’s a 50-50 chance that gold will either go down towards $700 an ounce or up towards $1,800 an ounce. What are your thoughts on this?” - Laurie

I have great respect for Jim Rogers and the work he does.

That said, I have never trusted anyone who draws lines in the sand and makes specific predictions.  The reason is that they are wrong more often than not. If it was easy to predict the next market move, we would all be rich.  

So, instead of timing short-term market moves, here’s what I do.

Employing Value Investing

To make my investment decisions, I employ a value investing strategy. This means I look at the real and relative values of an asset class before deciding whether to invest in it or not.

I always sell some of the assets that have performed well and rebalance my portfolio by buying those that have underperformed. Of course, I don’t invest in assets when they are in free fall; I wait until they stabilize.  

Another thing you should look at when evaluating investments is the supply and demand dynamics. At times, there is a definite oversupply of an asset and it is wise to wait until supply is cut down before buying it. 

Supply and Demand

Uranium is a perfect example here. It took six years for its supply to get back to normal. Now it’s quite attractive again.

In fact, supply and demand is the reason I believe gold and silver are a good investment now. Demand for physical bullion is solid, and it would take a little turmoil in the markets to send the demand skyrocketing.

Meanwhile, bullion supply has been in decline because many mines are shutting down. The miners have stopped exploring due to low bullion prices and now are running low on reserves. In this case, we see an apparent undersupply of bullion, which is not likely to change anytime soon.

Calls That Didn’t Come True

I remember when three to four years ago, financial guru Harry Dent predicted that gold would go down below $700 and could end up as low as $300 within a year. It’s never broken below $1,100.

In late 2010, a lot of well-respected financial experts predicted that gold would break $2,000 and might hit $10,000. They may be right some day, but not yet.

The problem is very few people are willing to be contrarians when an asset class is out of favor. So everyone is just building their predictions on the underlying consensus trend. But trends have a tendency to reverse.

I do not pretend to know if gold will be cheaper in six months. But what I do know is that gold and silver are now a good value at current prices, both historically and relative to other asset classes. For those reasons, I’m adding more precious metals to my portfolio. If they get cheaper, I will be happy to buy more.  

I would love to buy some at $700, but I do not think it will happen.

Nobody likes commodities right now, but I find them much more attractive than most overpriced tech stocks.

I hope this helps and thank you for your question.

Olivier Garret

Olivier Garret, CEO
Hard Assets Alliance

 

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