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Is the Gold Rush Over?


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Back in March 2010, our Retired Old Blogger suggested that gold was a good buy at $1,104.30.  It's now around $1,300.  That's almost an 18% return over about 6 months.  So is the gold rush over?

The short answer, according to Bill Bonner in Money Week, is: no.  A lot of other experts agree with him.  The bull market in gold, according to such experts, is far from over and there are many different reasons to believe that this should be true.

Take emerging markets.  The central bank of Bangladesh recently bought ten tonnes of gold from the IMF.  China, according to many analysts, wants to see it's gold reserves increase to 10% of the country's foreign exchange reserves.   That's almost a six fold increase over present levels and is the equivalent of two and a half years of worldwide production.

The value of gold has increased by a factor of 5 since the end of the bear market in 2001.  But what of the other factors that affect the price of the metal?  Well, there's the old story of gold being a 'safe haven' in troubled times and, lets face it, times are very troubled right now and the economic malaise in the Western world is likely to continue for quite some time.  Gold is the ultimate currency - it can't be manufactured or printed. If Britain and America start renewed programmes of so-called 'quantative easing', i.e., printing money to get out of crippling debt problems, investors will turn increasingly to gold.

Printing money inevitably decreases its value - that's inflation for you.  And it never bounces back.  The pound in your pocket today, will not buy anything like the same as it would have 30 years ago and never will.  Gold, on the other hand, does bounce back and it would have to bounce back to almost twice the current value to reach the inflation adjusted high spot of the last century.

Many experts think gold will return to the high spot of 1980 and just keep going, but we're not putting our pension on it.  Don't fill up your nest with golden eggs.  Always maintain a well balanced portfolio.

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