The price of gold is currently hovering around $850.00 per ounce and, in my view, has held up extremely well in the face of the huge forced liquidatio...
The price of gold is currently hovering around $850.00 per ounce and,
in my view, has held up extremely well in the face of the huge forced liquidation that has yet to be concluded.
Gold is going to come back as the ultimate store of value and, if my expectations for new inflation in the coming years turn out to be right, then this commodity could skyrocket in price. I don't believe that the commodity price cycle is over; in particular, it has yet to run its full course in the agricultural sector.
With the stock market down and bank credit tight, imagine how difficult it must be in the precious metals business. There's no new money for exploration and development. There's no new money for mines. So, with steady demand for the commodity from industrial and individual customers, we're going to experience a supply squeeze and this will force the spot price of the commodity much higher. One of the most respected large gold producers in the world, Goldcorp, Inc. (NYSE/GG), has already moved up some 15 points from its recent 52-week low set at the end of October 2008. This stock could appreciate much further over the next several years.
I do think it's fair to assume that other precious metals will not return to their previous highs for quite some time. The global recession has a lot to do with this. In particular, China is slowing and this is the main reason for some weakening in precious metals demand.
That country does have the money, however, to spend on its economy. With such a large trade surplus, it doesn't have to go the capital markets and issue debt to spend billions on a stimulus package. It has the money already sitting in the bank, which is why that country's spending boost is likely to work the best. This also means that China's demand for the world's resources will resume its uptrend.
This leads me to credit and how its availability to end users is so critical to the proper functioning of an economy. Providing financing has always been what Wall Street's about. Now that the big firms will have the backing of major bank lending institutions, you can count on Wall Street coming up with new financing options for business customers. And, boy, do they need them! Precious metals mining is the perfect industry to illustrate how important the availability of credit really is. When the money dries up, so can entire industries. Even if demand is lessening, tight credit eventually means tighter supply.
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