Gold bullion prices reached a new six-week high this morning as oil prices continued to rise and the American dollar trended lower against the Euro. Gold prices are up about seven percent since the end of June.
Yesterday saw the shares of large gold producers Newmont Mining Corporation, Kinross Gold Corporation, Barrick Gold Corporation, Agnico-Eagle Mines Limited, and Goldcorp Incorporated rise an average of 5.3% in one day. There’s no secret of my love for this group of five major gold producing stocks.
The big question on everyone’s mind is, will gold bullion push above $700.00 this year? (Gold last rose above US$700.00 per ounce in the spring of 2006. Since then, gold bullion prices have failed to rally above the $700.00 level.)
I’m bullish on gold for these reasons:
Inflation is a real threat to the economy today. If the U.S. Federal Reserve raises interest rates to curb inflation, gold bullion prices will rise, as gold is the only natural hedge against inflation.
If the Fed lowers interest rates to fend off a possible recession and because the U.S. economy is slowing too fast, the American dollar will fall in value on world currency markets, sending gold prices up again.
The huge debt levels created in the U.S. at both the personal and government levels and the massive liquidity created in the last few years are placing immense pressure on the once dominant American greenback. Will the Euro, pound, or Yen become the favored currency of investors taking money out of U.S. dollars? Possibly the Euro, as interest rates continue to rise in Europe.
But in the end, I believe gold will be the currency investors literally run to as they evacuate the American dollar. We may one day look back at the 2005-2007 period and say, “What a bargain gold bullion was then… if only I had bought some shares of the major gold producers.” Or you can simply just buy them today.