Futures & Fortunes — Waiting for the Next Big Trade

It doesn’t really matter what’s happening in the broader market. If you own gold or silver, you’re a very happy investor. I think gold will run to $1,500 an ounce, perhaps by the end of the year. With investment risk high in equities and yields low in bonds, institutional investors are jumping on the golden bandwagon. The trend is definitely your friend in the futures market.

It really is boom time in the gold business and companies are easily able to raise equity funds to explore for the metal. The fundamentals for strong gold prices are solid. There’s a recovering global economy, a weaker dollar and big increases in money supplies among most Western nations. It really doesn’t get any better if you’re a gold bug.

Along with gold, plenty other precious metals are also going up in price and this sectoral price strength really helps mining companies. Even at a designated gold mine, companies often dig up a lot of silver, copper and other precious metals. The price strength in a group of metals just goes right to the bottom line.

Along with these record spot prices comes the risk of a major correction. These are commodity futures markets after all and volatility is the name of the game. But it seems probable that the longer-run price trend is intact for gold and silver. Copper will benefit from Asia’s economic recovery. I wouldn’t call my broker and load up on gold stocks right now. The big money has already been made. But, if we get a meaningful correction and you don’t already have some exposure to the sector of the market, then this would be an opportune entry point. Inflation is coming in a few years. It’s already happening in certain agricultural commodities.

Having some exposure to gold is fortunately an easy thing to accomplish. There are countless gold exchange traded funds from which to choose. There’s also a lot of individual gold miners out there and plenty of hopeful juniors. The gold rush isn’t going away anytime soon. If the spot price corrects somewhere near $1,000 an ounce, this will hurt gold stocks significantly, but it won’t hurt the gold mining business model. If we get a meaningful correction over the coming months, a great opportunity for investment will present itself.