With turmoil overseas and energy prices on the rise, investors are worried. They’re worried about geopolitical risk. They’re worried about a falling dollar. And they’re worried about inflation becoming entrenched as the Federal Reserve continues to administer its cheap-money medicine despite rising price pressures.
As a result, gold is on the move. After being caught in a funk since last fall gold prices have taken flight. Prices are nearing $1,500 an ounce. But now, some analysts are calling for prices to move towards $5,000 within the next few years. And it could happen sooner than you think.
This is because, according to the folks at Standard Chartered, gold is moving into a new “super-cycle” as a number of structural factors including consumer demand from Asia and tepid supply growth combine to push prices higher. The team, led by Dan Smith, is looking for prices of $2,107 an ounce in 2014 as their base case forecast.
But there is the potential for much more. In their words, “statistical modeling suggests a possible ‘super-bull’ scenario of gold prices rallying up to $4,869 in nominal terms by 2020.” It’s all about supply and demand.
For investors, the initial focus should be on precious metal commodity ETFs like the Gold SPDR (NYSE: GLD) and the iShares Silver Trust (NYSE: SLV). But over the long haul, and as increased supply comes online, it’s the stocks of gold and silver miners that should outperform. Easy exposure can be had from the Global X Silver Miners (NYSE: SIL) — which holds the likes of Silver Wheaton Corp. (NYSE: SLW) — as well as the Market Vectors Gold Miners (NYSE: GDX) — which holds Barrick Gold Corp. (NYSE: ABX).
Demand is coming from the increased wealth in Asia. The evidence shows a strong relationship between rising incomes in places like China and India and increased gold demand. Much of this is cultural, with gold holding a place of special religious reverence.