The Opportunity That Sells Itself

gold stocksThere’s absolutely no reason why the price of gold can’t hit $1,500 in the next six months. It might do so much sooner.

Successful speculation in commodities has been and always will be a volatile endeavor, but there’s no other capital market that experiences the bandwagon effect to the same degree. Forget fundamentals; the spot price of gold will likely hit $1,500, because it can. With a current spot price of around $1,250, gold only has to appreciate another 20% before achieving this milestone. I think it can easily do so and, along the way, make a lot of money for gold investors.

As we’ve considered before, the gains to be had from gold mining investments are mostly about incremental returns. Gold stocks have been going up for a while now and many are currently trading at their 52-week highs. From my perspective, even the most exciting Chinese stocks can’t compete with gold. The market is just that hot for the commodity.

When China and Australia report manufacturing and GDP numbers that beat consensus estimates, you know that this Asian region is doing well — much better than over here. Australia is doing great right now because of China. The country can’t find enough skilled workers, the housing market is on fire, and it is selling all of its gold and other resource production to China. With a small population base, that’s the makings of a booming economy.

Even when domestic capital markets fret about China’s economic growth, the Asian country’s economy is still growing at an almost double-digit pace. And, along with India, this is a powerhouse region that just happens to have a strong affinity for jewelry.

This is the biggest selling feature for the argument of a rising gold price. The fact is that, with these two economies growing at breakneck speed, the physical demand for gold (in manufacturing and jewelry) is getting stronger. All you have to do is look up the latest financial results of some jewelry chains in China. The first quarter was weak, but the second quarter saw a huge pick-up in sales, and the bottom half of the year is always the economy’s strongest.

When you consider the outlook for a weaker dollar, huge government debt, and huge increases in the money supply, the argument for buying gold is convincing. Add in relatively stable production of the commodity on a global basis and a solid demand base from industry and individuals in Asia, the argument for gold really does sell itself