Gold, is it ready to tumble?
Sep 4, 2011 / 5:00 am
During recent conversations with clients, the question that always comes up is Gold and whether it is going to continue to increase or will prices pull back.
During the 1970's, Gold prices soared to record highs just to see prices fall almost 70%. With this history in mind, it has economists nervous as we have seen gold prices surge in recent months.
So will history repeat itself….and is this a good time for investors to cash in and pocket their profits? Analysts and industry experts say no!
A leading expert and chief economist at Dundee Wealth stated in a recent article that, “There’s still time to jump in; I think gold will go significantly higher. On an inflation-adjusted basis, gold has not had a new high,” he says. On an inflation-adjusted basis, the 1980 high of $850 remains the record. To top that in today’s dollars, bullion needs to top $2,400. “Gold is going through at least that,” he says.
Gold prices may see a minor correction which could be around the corner. The good news is that the correction, both in the short- and long-term, won’t be like the 1970’s. Policy response was slow back then, whereas today the policy responses are much faster which mutes the downside of a correction.
To predict when a correction may happen is impossible. We could see a correction if global factors responsible for fuelling gold prices slow, and more so when the market is at least somewhat satisfied that policymakers in Europe are addressing the market’s concerns, which is one of the drivers behind gold’s increase.
Another important factor contributing to gold’s current run is the increased interest of central banks which are holding large reserves. As an example, South Korea recently spent more than $1 billion in its first purchase of gold in more than a decade.
Another reason we are seeing gold prices increase is the large amounts being purchased by emerging markets such as China and India. There are several reasons why these emerging economies are purchasing gold. The first is the high rate of inflation, the second is growing wealth, and the third, which is often overlooked, is the market deregulation in these countries for gold.
While there are no immediate signs to suggest investors bail out of gold, we would recommend that you maintain a balanced portfolio and based on your personal risk profile. This could include holding gold in your portfolio.
If you would like more information on this topic or would like a review of your current financial plan, please call 778-478-9759, or e-mail [email protected].
This column is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, or life insurance, and should not be taken as providing, investment, financial, legal, accounting or tax advice. All services provided through NorthBay Financial Services. Mutual funds are provided through Sterling Mutuals Inc. Insurance is provided through multiple carriers. The opinions expressed are those of the authors and do not necessarily reflect the views or opinions of Sterling Mutuals Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds and Segregated funds are not guaranteed, their values change frequently and past performance may not be repeated.
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