The Bull's Case for Investing in Gold
Next stop $1,000? Gold has climbed more than $160, about twenty percent, in the last four weeks, and no matter where it goes from here over the short-term, some bulls think the long-term price is headed higher
The price of the shiny yellow metal, now trading around $970 an ounce, is dependent, for the most part, on the value of the dollar. When the buck falls, gold rises, and vice versa. Some experts predict that even though the U.S. dollar has rallied since the financial crisis began, the greenback will resume its decline later this year or in 2010, for a couple of reasons.
First, the obvious: the supersize U.S. budget deficit, which has gone from a $128 billion surplus seven years ago to a to a more than $1 trillion deficit now. The government’s inability to pay off its debts each year has led to inflation, the devaluing of the dollar and a seven-year rally in the price of gold. But some analysts say the second reason, President Obama’s $787 billion stimulus plan and other spending to prop up the economy, could have a bigger impact on the value of the dollar. To pay for that stimulus, the U.S. will have to print a lot more money, rack up an even higher deficit (potentially $1.6 trillion by the end of this year, some economists predict) and likely bring inflation back with a vengeance. “In the long run, there are more negative than positive forces on the dollar,” says Geoff Somes, senior economist with State Street Global Advisors.
All that sounds great for gold, but it’s still not a sure thing. Deflation, not inflation, is what worries some analysts in the short term. And when the dollar rose last fall, gold lost around 20 percent of its value. Still, many pros recommend gold as a kind of insurance policy against losses elsewhere in one’s portfolio.
