Gold has proven to be a strong performer up 16. 99% from September 11 2001 to September 11 2002. While gold continues to make gains, the US Dollar is down more than 7%, the Dow has fallen over 14%, S&P 500 down over 19% and the Nasdaq has the worst stock market performance of all, down over 24%. Buying into gold stocks is a preferred way to balance and diversify share portfolio. Gold can reduce the volatility of the portfolio, lower exposure to risky stocks. Weak economy and volatile stock market is not expected to recover in near future.
On top of this a terrorist attack of any kind would adversely affect the share market. NASDAQ and DOW are already trading at very low levels since post-September 11th and a drop from here would be a disaster. Some analysts feel that the DOW can drop well below 6,000 maybe as low as 5,000. A drop to these levels could be an economic disaster for U. S. stocks for decades to come. Likewise, no one can forecast how high gold prices could rise in the event of another terrorist attack. Gold prices are up dramatically this year (2002).
Weaker US dollar and the threat of war will continue to keep strong interest in gold. Gold stocks will benefit from stronger demand and high gold prices. Gold imports were up 105.
5% for the year in Japan. Many Japanese have looked to gold in recent months as a safer investment than the country’s shaky banking system. The Nikkei is not performing well while Japan was in a recession over the last few years. These days, the Japanese are also very worried that their banks may be next to fail. That’s exactly why they’ve doubled their demand for gold in recent months.
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The Asian demand especially from India and China is expected to remain strong in the future. Worldwide, many indicators point to a deep and widening U. S. recession, not a quick recovery. Indeed, we feel the 16.
99% rise in gold in the past 12 months is the most significant reason to invest into gold stocks. While past performance is no guarantee of future earnings, moving 5% to 10% of your portfolio into a safe haven like gold makes sense to even the most conservative investors. Since gold is traded worldwide in U. S. Dollars, the recent record high dollar forced down gold prices to record lows.With the dollar appearing to be on the decline long-term, the price of gold is expected to rise automatically. During a strong economy, with low inflation rates, and peaceful times, gold traded down to a 20-year low of $255/oz.
It has been historically proven that gold performs best when the economy is weak and the war threats are looming. During the late 1970’s when the Iranians seized the American Embassy the stocks declined and gold hit an all-time high of $850 per ounce.Currently the economy is weakening and we have an expensive War on Terrorism underway. As government spending and the U. S. budget deficit soars, few investments benefit more from financial problems than gold.
Gold is a supply/demand driven market and demand has been at record levels for several years. However, European Central Banks flooded the market with an abundant supply artificially forcing down gold prices. But, the Bank of England made its final gold sale earlier this year.
This means that only the Swiss now have significant reserves for sale under the Washington Agreement on gold in 1999. Although the disposals have been well controlled a hefty 820 tonnes of Switzerland’s designated 1300 tonnes still remain for sale4. We feel rising prices and soaring demand is about to create a huge shortage of physical gold and further spike gold prices.
Due to low gold prices over the last five years, new gold exploration came to a standstill. Worldwide studies predict a 30% decline in industrial gold production over the next 10 years.Today, with gold prices rising dramatically and Central Bank supplies drying up, anti terrorists and terrorist activity causing markets to flutter and equity to continue to fall it is envisaged that prices will rise quickly as gold demand overwhelms the physical supply. In times of uncertainty and fall in equity prices markets turn to safe havens such as gold for investment.
Rising prices and reducing costs bode well for the gold industry with produces and investors alike set to benefit. As gold breaks free from the doldrums of its economic cycle it is looking very attractive.
