09/05/10 San Antonio, Texas – I’ve done a number of interviews on gold recently and the number one question I get most from reporters is—can gold prices go higher?
My answer is yes.
Short-term, “record gold prices” are a bit of a misnomer. On an inflation-adjusted basis, gold’s real record price would be over $2,300 an ounce.
Looking at our oscillators, gold appears to be far from overbought. The chart shows the 60-day oscillator for gold (yellow) and the U.S. dollar (green) for the past 10 years as of August 31. One standard deviation represents a 7.3 percent move in gold prices.
Despite its recent run, gold was down 0.38 standard deviations as of the end of the month. More importantly, we’re not seeing the huge price spikes that are typical when investments get overheated.
Long-term, I think gold prices could double over the next five years. If this happens, the effect on gold stocks could be tremendous. If gold manages to double over the next five years we could see the values of some miners triple.
This would not take place in a straight line. Investors must be aware of the volatility inherent with these investments. Assuming normal historical volatility, these stocks could up or down 40 percent over any 12-month period.
Regards,
Frank Holmes,
for The Daily Reckoning
P.S. You can visit my blog, Frank Talk, for more daily commentary.
Frank Holmes
Frank Holmes is chief executive officer and chief investment officer of U.S. Global Investors Inc. The company is a registered investment adviser that manages approximately $4.8 billion in 13 no-load mutual funds and for other advisory clients. A Toronto native, he bought a controlling interest in U.S. Global Investors in 1989, after an accomplished career in Canada’s capital markets. His specialized knowledge gives him expertise in resource-based industries and money management. The Global Resources Fund was also Morningstar’s top performer among all domestic stock funds in the five-year period ending Dec. 31, 2006.
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Gold and Silver will be the last ones standing when this 40 year experiment in fiat comes crashing to an end.
“Can gold prices go higher?” is equivalent to “Can the value of the US dollar go lower?”
The obvious answer to that is “Yes!” Especially since ‘lower’ doesn’t mean relative to other currencies, which might be debased at about the same rate as ours, but in an absolute sense, with higher literal dollar volume.
It’s equivalent to “Can the Fed ‘print’ more dollars?” Um, yeah, even without using the printing press these days. So they can print more easily than Weimar Germany did.