As investing is the act of buying the future income stream of an asset, buyers should look upon gold being down for two years in a row as an opportunity. For 2013, SPDR Gold Shares (NYSE: GLD), the main exchange traded fund for The Yellow Metal, is down more than 25% for 2013 (chart at bottom of page).Goldcorp Ltd (NYSE: GLD), the world’s largest gold company, is off by nearly 40% for the year. Wishbone Gold PLC (OTC: WISHY), a small cap with promising holdings in Australia, is up in recent market action.
The actions of central bankers around the world should lead to gold rising. Another article on this site reviewed how quantitative easing, in which central banks such as the Federal Reserve and Bank of Japan expand balance sheets to acquire securities in an effort to keep interest rates low, should lead to inflation. That should result from the creation of so much paper money without the corresponding economic growth.
Basically, trillions in fiat currencies have been printed wth no backing.
Historically, that leads to inflation. It becomes the classic case of “too many dollars chasing too few goods” that leads to higher prices. That is what causes inflation.
When inflation sets in, the value of paper money falls. Investors lose confidence that a fiat currency will buy as much in the future as inflation is eroding its value. That is when gold traditionally becomes more attractive, as detailed in a recent article in The Wall Street Journal.
That has not happened yet due to quantitative easing, but it should. The price of commodities such as oil (NYSE: USO) has rise. It is only a matter of time before gold assets rise, too.
When that happens, SPDR Gold Shares should rise as it is the exchange traded fund for the sector. Wishbone Gold PLC has very attractive holdings in Australia. A recent positive report on its assets probably accounts for the recent price rise. As the world’s largest gold company, Goldcorp. should rise with the price of The Yellow Metal.