Why Gold Is Undervalued And A Good Investment?
Gold maybe the best long term investment right now! While many investing gurus are calling for the demise of gold, it is infact still undervalued. Why I say that gold is still undervalued? Well, right now gold is priced around $1,000 per ounce. A few months back gold had breached the historical barrier of $1200 per ounce.
But was it a historical barrier. In the decade of 70s, gold market had seen an unprecedented bull rally. In 1980, gold prices reached $850 per ounce. In terms of 1980 prices inflation adjsted, today price of $1100 per ounce is equal to only $425 per ounce.
Now the gold price of $850 when inflation adjusted translates into over $2000 in present term dollars. So you can see there is still a wide margin for the ascent in the gold prices.
This doesn't mean that this ascent will take place in a straight line. Markets never move in a straight line. In 2000 when the first bull market started in gold,it lasted till 2005 then there was a descent and then again an ascent.
In other words, there are always minor trends buried in the major trends. What I mean is that there is a long term uptrend in the gold market that may have small downtrends. Now, what can be the reason for a secular long term trend? Usually Central Banks are net sellers of gold in the market. They do it to stablize their currencies. But now Central Banks have become the net buyers of gold. The reason is the weak position of US Dollar. US Dollar is the international reserve currency that almost all the Central Banks in the world hold in their vaults. Most of these Central Banks are now trying to hedge against the devaluation of US Dollar that might occur in the near future. Right now, US Dollar became more strong despite the warnings by the experts but the long term weakness of US Dollar cannot be ignore especially by the Central Banks.
Now the problem with US Dollar is going to continue for a long time. You see US government has borrowed heavily from foreign investors. The government is running a huge budge deficit. Then there is a huge trade deficit. All these things when couple together put a lot of pressure on the US Dollar and make it risky.
Secondly with the FED printing more and more money to help bankrupt firms, this increase in the money supply is going to be inflationary in the long run. High inflation means a weak Dollar.
So in the coming years, those who take long positions in the gold, silver and other precious metals are going to be rewarded handsomely.
With the current financial and geopolitical situation, gold is the best bet for long term investors. There is still a long way for the gold prices to go in terms of the 1980 bull market before we can safely say that the gold prices have reached their historical high.
But was it a historical barrier. In the decade of 70s, gold market had seen an unprecedented bull rally. In 1980, gold prices reached $850 per ounce. In terms of 1980 prices inflation adjsted, today price of $1100 per ounce is equal to only $425 per ounce.
Now the gold price of $850 when inflation adjusted translates into over $2000 in present term dollars. So you can see there is still a wide margin for the ascent in the gold prices.
This doesn't mean that this ascent will take place in a straight line. Markets never move in a straight line. In 2000 when the first bull market started in gold,it lasted till 2005 then there was a descent and then again an ascent.
In other words, there are always minor trends buried in the major trends. What I mean is that there is a long term uptrend in the gold market that may have small downtrends. Now, what can be the reason for a secular long term trend? Usually Central Banks are net sellers of gold in the market. They do it to stablize their currencies. But now Central Banks have become the net buyers of gold. The reason is the weak position of US Dollar. US Dollar is the international reserve currency that almost all the Central Banks in the world hold in their vaults. Most of these Central Banks are now trying to hedge against the devaluation of US Dollar that might occur in the near future. Right now, US Dollar became more strong despite the warnings by the experts but the long term weakness of US Dollar cannot be ignore especially by the Central Banks.
Now the problem with US Dollar is going to continue for a long time. You see US government has borrowed heavily from foreign investors. The government is running a huge budge deficit. Then there is a huge trade deficit. All these things when couple together put a lot of pressure on the US Dollar and make it risky.
Secondly with the FED printing more and more money to help bankrupt firms, this increase in the money supply is going to be inflationary in the long run. High inflation means a weak Dollar.
So in the coming years, those who take long positions in the gold, silver and other precious metals are going to be rewarded handsomely.
With the current financial and geopolitical situation, gold is the best bet for long term investors. There is still a long way for the gold prices to go in terms of the 1980 bull market before we can safely say that the gold prices have reached their historical high.
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