Why Gold Looks Set For A 13th Successive Annual Gain
Filed under: Investing
I believe that lasting geopolitical and economic worries will propel gold to a 13th successive annual gain this year. Investors can profit from this scenario through SPDR Gold Trust (NYSE: GLD.US) and Gold Bullion Securities (LSE: GBS), both of which track movements in the yellow metal's price.
Precious metals consultancy Thomson Reuters GFMS announced last month that it expects gold to average $1,847 per ounce in 2013, up from $1,667 per ounce the previous year. Spot bullion currently trades at $1,670 per ounce, providing a reasonable base from which to challenge 2011's record peak above $1,900.
In my view, the current financial backdrop provides a melting pot from which canny investors can create solid gains.
Fresh political turbulence should boost demand for the safe-haven asset, with major European elections scheduled and discussions in the US on the debt ceiling and spending cuts set for coming months. Stagnating economic growth in the West is also likely to boost gold demand.
Central banks in focus
Most significantly, the spectre of rising inflation across the globe and consequent fears over the value of fiat currencies could well drive inflows into the shiny 'hard currency' over the medium term. The preservation, and even extension, of ultra-loose monetary policy by central banks to stimulate flagging economies should exacerbate the issue.
America's Federal Reserve is likely to keep September's open-ended bond-buying scheme (or 'QE III') in place regardless of the inflationary implications. Recent data from the States, in particular, the shock 0.1% drop in fourth-quarter GDP, and an unemployment rate which remains anchored around the 8% mark, means that Fed chief Ben Bernanke is likely to keep the printing presses switched on.
The US is not the only country expected to keep the stimulus rolling in coming months -- indeed, the recently elected Japanese government has announced plans to weaken the yen to resuscitate overseas trade, and has launch an unlimited asset-buying plan of its own.
Such steps have prompted policymakers across the globe to warn of fresh 'currency wars', with central banks and governments systematically weakening their domestic currencies to keep their exports competitive.
Furthermore, rising official sector bullion purchases should also drive the gold price skywards, as institutions seek to diversify their reserves from paper assets and the value risks associated therein.
Central banks bought 536 tonnes of the metal last year, the most in almost half a century, according to GFMS. Acquisitions are set to hit 280 tonnes in the January-June period, up 1.2% on an annual basis, GFMS added.
Mine gold stocks for gains
Investors can also gain exposure to a rising gold price through shrewd stock picks in the mining sector.
Galloping demand for natural resources should continue to drive broader commodity stocks higher over the long term, and this special wealth report from The Motley Fool gives investors the lowdown on how to make a mint from select stocks in the mining sector, including one major African-based gold producer. Just click here for your report -- it's free.