Gold Price to Keep Rising Due to Limited Supply, Glut of US Dollars

“Gold rose to the highest price since 1980 as a decline in the value of the dollar boosted the appeal of the precious metal as an alternative investment,” reports Pham-Duy Nguyen for Bloomberg. “Gold is gearing up for another rally,” ads Paul McLeod, the vice president of the precious-metals department at Commerzbank Securities in New York. “It’s moving with the dollar, but it’s also gathering its own momentum,” he says.

Gold for December delivery nearly clipped US$760 during trading on the New York Mercantile Exchange. Iron ore may be the new gold. But gold is still the old gold.

What gold has going for it these days—in addition to be a store of value and money for thousands of years of human history—is that the supply of new gold is growing less fast than the supply of new US dollars.

This is why Dr. Marc Faber likes gold so much, according to the latest issue of his “Gloom, Boom, and Doom” report. It’s not just gold either, but all hard assets…gold…food…and mining stocks. They all enjoy the advantage of tangible assets…namely that you can’t print gold mines or an ear of corn.

“If, in the long run,” Dr. Faber writes, “central banks have no other option but to print money, then the place to be for investors is the asset for which the supply is the most limited. Money can be printed—physically and electronically—and the supply of equities and bonds as well as of real estate can be increased significantly.”

But not everything.

“The supply of gold is simply very limited,” Dr. Faber adds. “I therefore continue to maintain that the great bull market in financial assets came to an end around the year 200 and that thereafter a bull market in gold and other commodities began, which is likely to extend for a long time—largely courtesy of our central bankers.”

Where do stocks fit in this picture? They are not hard assets. Some stocks—though—produce hard assets and precious metals.

Dr. Faber continues, “If one is to believe the money printing will continue to lift asset prices, precious metals would seem—at least for the foreseeable future—to offer a better alternative to equities. Gold mining stocks, which have undergone a serious correction and are now inexpensive compared to the bullion price, also seem to be attractive at this point.”

With so many producers of hard assets, Aussie stocks are absolutely flying. “It can’t go on. But it does, higher and higher each day,” reads a headline in today’s Sydney Morning Herald. “All sectors are up, banks are up, commodity stocks are up – in general everything seems to be in green today,” said Dominic Vaughan, a senior dealer at CMC Markets.

Stocks will correct. They always do. But with a strong dollar and a strong resource sector, Australia is dually lucky.

Dan Denning
Markets and Money

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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