With all the volatility hitting the stock market over the past few weeks, one would rationally expect gold prices to rise as stock investors seek stable refuge.
But if we look deeper, we realize that a run-up in gold prices could cause the financial panic hitting the credit market to run even deeper. I personally believe that the last thing central bankers around the world want to see is gold prices shooting higher. Such an event would signal a lack of credence in the financial markets and in our free enterprise system.
At its current price of $660.00 U.S. per ounce, gold is within striking distance of the multi-year high the metal reached only last year, when it broke above $700.00 U.S. per ounce. A look at the price chart of gold bullion prices illustrates a perfect rising trend over the past few years… a trend I expect to continue.
The golden opportunity, as I see it today, lies in purchasing quality gold producer stocks at what I believe are fire-sale prices. The recent market sell-off has not been kind to any given stock market sector, including gold stocks.
Stock prices of major gold producers are off. The Dow Jones U.S Gold Mining Index is down 21% over the past 12 months. And if you are a gold bug like me, you see the sell-off in quality gold producer stocks as an opportunity to enter the gold market or to dollar-cost average your position down.
Rising debt levels, instability in the financial markets and a weakening U.S. currency are all the ingredients needed to cause gold prices to rise. Regardless of what world central bankers want, in the end, natural market forces lead. And that’s exactly why I see higher gold prices ahead.