Turmoil in the Middle East, rebellion in Ukraine, an Ebola outbreak in West Africa, and massive quantitative easing. In the past, even a whiff of conflict or financial crisis would have sent gold prices skyrocketing.
Yet today, despite high consumer demand, the entire complex of precious metals is acting as if there were vast supplies. Gold prices are once again headed for $1,150 – the support level I warned that gold would return to. And investor sentiment could continue to get more negative from here. However, I just had a private meeting in Toronto with two of the most plugged-in men in the business, and their outlook could not be more bullish.
The Metal Kings Say…
Recently, I met with Eric Sprott and Rick Rule, arguably two of the most successful investors in the precious metals space. The question in their minds is not if gold will go higher, but when. I agree with their conclusion, but I don’t see it happening in the near future.
Even these metal heavyweights’ optimism can’t hide the fact that gold has been in a bear market for two years. Gold is down more than a third from its highs, putting many producers in danger of operating below cost. Even so, I wrote earlier this year about my retail and wholesale contacts who were looking for lower gold prices, despite gold values rallying up to the high $1,300s.
Clearly, the demand is there. Especially from the Chinese and the Indians. But supply is also there as short-term holders are tiring of stockpiling something that’s underperforming. This underperformance won’t last forever, though.
Trust in Gold
Buying and owning gold for what might happen next week or next year isn’t what the metal is all about. Gold is what you buy when the US dollar and other currencies are doomed to lose value due to inflation, increasing debt, and currency printing.
Gold is also what you buy when there’s less supply than demand. And when you look forward, the supply situation doesn’t look very good.
Unlike the shale revolution, which added billions of barrels of supply to the oil market, there’s no “shale gold” play.
In fact, it’s getting harder to find viable new mines. The cost of starting a mine is in the hundreds of millions, leaving any prolific development strictly to a handful of companies that can foot such a bill.
Unfortunately, these companies aren’t looking to develop any major projects after divesting several high-cost ventures over the past few years.
This isn’t an overnight bet, but it’ll likely pay off big, as owning bullion, gold ETFs, or high-quality gold stocks is a solid play.
Gold traded at $300 for years until one day it started to move higher. The price multiplied six times over within the decade, resulting in the best performance of any asset class this century. And it could easily happen again.