Reasons Why Gold Will Rise in 2008

1980 High

On January 21, 1980, gold closed at $825.50. Today, it takes $2,200.00 to buy what $825.50 bought in January 1980. Therefore, gold still has a long way to go before it reaches and surpasses its all-time high.

1. The Dollar Slide

Over the past five years, the dollar has lost 50% of its value versus the euro. Large institutions and central banks are moving their dollar-based assets into non-dollar-based assets. This is coming at a time when the U.S. economy is slowing to a crawl. In order to stop the U.S. economy from slipping into a recession, the Federal Reserve has no choice but to reduce interest rates in order to stimulate the economy. As rates decrease, the dollar collapses. As the dollar falls, investors are moving their dollar-based assets into assets such as gold – increasing demand and pushing the price even higher.

2. Flight to Quality

The sub-prime mortgage crisis was the catalyst that pushed gold to 28-year highs, and now we’re seeing investors make a flight to quality as fundamentals are supporting strong prices. In 2007, gold produced a return just below 30% while the S&P 500 increased less than 8%. The uncertainty in the U.S. stock market, stemming from the sub-prime crisis, has caused investors to move their assets into stable assets. These assets, such as gold, have provided portfolios with much needed protection and, at the same time, have increased the value of portfolios at a rate of 4 to 1 over the stock market during the past few years.

3. Oil Versus Gold Ratio

Historically, the average oil/gold ratio has been around 15:1, meaning that the price of fifteen barrels of oils equals the price of one ounce of gold. That ratio has recently dropped to around 9:1. To return to average levels, the price of gold would have to increase to around $1400 (or there would have to be a drop of similar magnitude in the price of a barrel of oil). In the near future, $1400 gold is more likely than $50 per barrel oil.

4. Central Bank Sales and Purchases

Central bank sales which served to depress the price of gold throughout the 90s have come to a screeching halt, with most central banks having already liquidated their gold reserves to a bare minimum. Instead of selling, central banks are becoming buyers. For instance, China’s gold reserves account for only one percent of its total reserves. With those reserves piling up rapidly, it seems inevitable that China will diversify part of its foreign exchange reserves into gold.

5. Investment Demand

In recent years, there has been a tremendous increase in institutional demand for gold. In addition, although investment demand has been relatively muted in the U.S., there is plenty of demand from the flourishing middle classes in China and India and from central banks in countries that have enjoyed gains from foreign trade, such as Russia, the Persian Gulf oil producing states, and China.

6. Commodities Super-Cycle

We concur with the strategists at Citigroup, Deutsche Bank and Goldman Sachs who are among the new generation of “super-cycle” proponents who believe that supply shortages in growing economies in China and India will send commodity prices and gold higher for another 15 to 20 years. The forces that have driven commodity prices higher in the past couple of years remain largely in place: global economic growth is strong; liquidity is plentiful and is increasing; and the demand for commodities will continue to grow in emerging Asia as the region industrializes and wealth grows.

7. Gold Mania

Mine production is falling at the same time that demand is rising. Worldwide investment demand for gold will remain at historically high levels, significantly exceeding 40 million ounces. Don’t rule out the possibility of a full-blooded mania in gold within the next couple of years, particularly given the fact that the flight from the dollar is picking up speed and momentum.

The Best Way To Buy Gold.

THE GOLD AMERICAN EAGLE AND GOLD AMERICAN BUFFALO: GUARANTEED BY THE U.S. GOVERNMENT.

The American Eagle Gold Bullion coin is an excellent way to own and hold gold. American Eagles are the best-selling gold bullion coins in America. They are traded worldwide on a daily basis, so they always have a ready market.

With the introduction of the new American Buffalo Gold Bullion 24-karat gold coin, investors now have access to $50 coins that each contain one troy ounce of the purest gold available in any coin.

Whether buying American Eagle Gold Bullion or American Buffalo Gold Bullion coins, you’re buying gold bullion coins whose weight, content and purity are guaranteed by the U.S. government. This makes them recognized not only as America’s official investment-grade gold bullion, but accepted worldwide in major investment markets. You can even include them in an IRA or SEP.

DIVERSIFICATION REDUCES RISK.

Many investors combine tangible assets like gold with their stock and bond portfolios to reduce risk. This is due to the fact that tangible assets have historically had a very low, even negative, correlation with stocks and bonds. And tangible assets have produced exceptional investment returns on their own. Diversification into tangible assets, like gold, is a highly recommended strategy for the savvy and prudent investor. Gold offers a higher level of liquidity and intrinsic value than purely paper investments.