BEND, Ore. (MarketWatch) — One of the world’s oldest asset classes still offers today’s investor safety and potential profits.
Gold GC1Q +0.02% , the “barbarous relic,” and its related exchange-traded funds, could indeed be “an ETF for the ages” as the global economy and equities markets face unprecedented uncertainty and danger.
The fundamental edge
There can be no doubt that we’re living in historic times as the financial world grapples with fallout from the recent meltdown, the ongoing possibility of sovereign-debt defaults, and political uncertainty across the globe.
Throughout history, gold has been seen as a “safe haven” in dangerous times, and today seems no different as investors and speculators alike look for safe harbors from treacherous seas.
Gold has been in a long-term bull market that dates to 2001, and, although the metal is volatile, many analysts predict that this bull still has a long way to run.
Consider some of the fundamental factors driving gold prices higher:
1. Recent uncertainty surrounding the outcome of the U.S. deficit-reduction debate has fueled concern about a U.S. default; potential destruction of the U.S. dollar; and even the possibility of a global recession or depression, which has added to the allure of gold as a safe haven.
2. Concern over debt problems and the possibility of a sovereign-debt default in Europe or even the possible breakup of the euro zone have fed doubt and uncertainty in the euro and paper currencies everywhere, leading more investors to the perceived safety of “hard” currencies.
3. Recent weak U.S. economic data raise the possibility of “QE3,” more quantitative-easing programs on the part of the Federal Reserve, which could serve to weaken the dollar and add to gold’s luster. Last week alone, gold prices posted their biggest weekly gain in a year and a half over these concerns.
4. Rising inflation in China and in food prices around the world support the price of gold as paper assets decline in purchasing power.
5. Central banks, particularly Russia’s and Mexico’s, have become large buyers of gold and will likely purchase more this year than in any year since the early 1970s, increasing worldwide demand for the precious metal.
6. Consumer interest in gold is running so high that gold vending machines have shown up in London, Abu Dhabi and Las Vegas. Gold appears to be on the cusp of “going parabolic” — and viral, as it becomes the subject of cocktail-party conversations and widespread media attention.
7. Financial luminaries like ex–Fed chief Alan Greenspan, the World Bank’s Robert Zoellick and Nobel Prize winner Robert Mundell have all suggested some sort of more important role for gold in the global financial system, which adds to its credibility as an alternative or supplement to paper currencies.
