Even the media gets it wrong at times. Take a recent Wall Street Journal story headlined "gold is still a lousy investment."
Actually, the numbers show the Journal was way off base, at least in its past assessment of gold, what with the precious metal being a spectacular performer in the 2000s, having shot up up nearly 600% this decade, and about 100% in the past four years.
Sean Brodrick, a Florida analyst who has been tracking natural resources for the past 10 years,
laced into the story in a chat the other day blasting it for being absurd. Anyone, Brodrick says, who thinks a 100% return is a lousy investment has serious issues.
No two ways about it, the price of gold has been galloping. Hardly a "lousy investment," gold has been on a tear. It closed 2005 at $517.10 an ounce and traded the other day at $1,066. If you go back to the year 2000, its performance is even more dazzling, having shot up nearly six-fold from its January 1 opening price that year of $281.
Brodrick is one of two precious metals pros I spoke to who suggests the WSJ piece on gold was pretty much an example of editorial fool's gold.
Actually, give the WSJ some credit. Its headline was right in one respect. Gold has indeed been a lousy investment, especially so if you bought the metal at its 1980 high of around $850 an ounce and sold it at its April 2001 low of $255.
More relevant, the $64,000 question is where does the price of the precious metal, which is up about 21% this year from its 2008 close of $880.80, go from here?
Since a climbing gold price is chiefly a reflection of such factors as a weakening greenback, rising inflationary expectations and political and international chaos--all of which are in play right now--our two pros maintain the ingredients are in place for the metal to continue to glitter. Our two pros, though, both see the prospects of a near-term pullback, but they argue any such decline presents a buying opportunity.
"I could see gold retreating to the $1,020-$1,030 range or maybe even back down to $1,000, but that's it," Brodrick says. Gold, he observes, has amassed new support. "$1,000 an ounce used to be the overhead resistance for gold; now it's the support for gold,"
With the dollar in what he terms "a big, bad bear market," Brodrick thinks the price of gold is like to rise to $1,100 before any meaningful pullback, which he believes would be followed by another run at some point next year to $1,300 an ounce.
Why a near term pullback? Brodrick offers a trio of reasons, namely a potential bounce in an oversold dollar, a possible bout of profit-taking following this year's roughly 21% rise and any failure of India to buy the sizable amount of gold it traditionally does during its annual nationwide Festival of Lights holiday, which is celebrated in October and November.
Though a gold bull, he flashes some cautionary notes, observing that the gold market s a wild and wooly market and one that shouldn't be chased. Likewise, he cites the obvious, that nothing ever goes straight up. The smartest strategy, in his mind, is to buy on weakness.
Taking a longer term view of gold, Brodrick notes it's a trend in place and importantly, the trend is strengthening. Here are some reasons why he thinks it will continue on this path.
- Investor demand is growing worldwide, especially as more and more central banks crank up the printing presses to prop up financial institutions and debase their currencies.
What's the best way to play gold? Two of his favorite plays are exchange-traded funds. One is the SPDR Gold Trust (GLD), which closely tracks the price of gold; the other is Market Vectors Gold Miners (GDX), a basket of big gold and silver miners.
Matk Leibovit, editor of the VR Gold Letter in Sedona, Ariz., also takes issue with the WSJ's characterization of the metal as a lousy investment, observing that the story "probably reconfirms the uptrend." The press, he says, has been laughing at gold for 20 years and thinks that anyone who likes it is crazy. Well, they're wrong, he adds, noting that anyone who bought gold in the 2000s and held on is laughing all the way to the bank.
Noting that gold is a key player in what he sees as a new commodity boom cycle, Leibovit contends "the gold party is just starting." His outlook calls for a $1,200 price tag near term, followed by a rise to $1,300 in 2010. If the price of gold ever caught up with inflation--which he thinks it will at some point--"we'd be looking at $2,300 gold," he says.
Taking note of the declining dollar, coupled with an out-of-control budget deficit, exploding debt, and the likelihood that inflation will kick in at some point, Leibovit sees the prospects, though not immediately, of a replacement for the greenback as the world's reserve currency, likely through a basket of currencies which would also include gold.
"I can't tell you whether it's six months or six years, but I think gold is on its way to $3,000, Leibovit says.
Among his top gold investments are physical gold, such as Canadian maple leaf coins; two Canadian gold funds, Central Fund CDA Ltd. and Central Gold Trust, and a Canadian blue chip gold stock, Agnico Eagle Mines Ltd.
The last time I wrote about gold on HuffPost, about four months ago (titled why gold won't fold), it was trading at around $995 an ounce. The skeptical WSJ notwithstanding, the up trend, as of now, according to our bullish duo, is still very much intact.
Write to Dan Dorfman at Dandordan@aol.com