As I write, gold is knocking on the door of $1,900 an ounce. And if you have been following my pyramiding gold strategy, you'll have noticed just how quickly those $100 up-moves have been coming round!
What we are witnessing is a seismic shift in the gold market. Investors and emerging market central banks across the globe are fed up with governments debasing currencies. So they are taking matters into their own hands. You could argue that they are re-establishing a gold standard.
And you need to be on the right side of this move. Today, I'd like to talk about why I think gold has established a new and sustainable price level. And why if you don't already have a gold buying plan, I think you should get started straight away.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Currencies have been over-valued for 40 years
Central banks across the globe are scrambling for gold. They're looking for a new and more robust reserve in the light of devaluing currencies.
As early as November last year, Robert Zoellick, the president of the World Bank, called for a global reserve currency based on gold. Since then countless emerging market central banks have been topping up their gold reserves.
Shrewd investors have been on the right side of this move. I am certainly not alone when I say that gold isn't going up, so much as fiat currencies are going down. To my mind, paper currencies have been way over-valued for quite some time, and investors are realising it. In a sense, gold is nothing more than a short on paper currency.
Our academic friends tell us that gold should have gradually adjusted upwards over the last forty years. All the time that banks printed paper currency, gold should have gone up to reflect all the new notes in circulation.
But it didn't! Gold stayed low for decades as faith in paper grew.
But with the credit crisis that faith has been shattered. And gold is now being pushed to centre-stage as a global reserve currency. Not because of central planners, but despite them.
In fact, compared to gold, paper currencies aren't the only assets that are deflating.
Is anything holding its value?
Take property. When the pundits say that prime London house prices have held up very well over the last three years, it's not strictly true.
Measured in most currencies other than sterling, they haven't. And given that it's largely foreign buyers propping up Mayfair, Knightsbridge and Kensington house prices, then it's an important point measured in foreign currency, the market is down.
And if you measure the market in terms of gold, the picture changes radically. In fact, in terms of gold, the inflation/deflation debate is well and truly put to bed.
The value of just about everything is deflating relative to gold. Why? Because currencies have been living in an inflated dream world for nigh on forty years.
The credit crisis of 2007/2008 was the top of the market for bank-created paper money. And not everyone has cottoned on.
We can do even better than the central banks
Many people have misconstrued MoneyWeek's position on gold.
Investing in gold has been good advice for ten years now. And readers that heeded the advice will have made a few quid out of it.
But gold investing isn't so much about making wealth as preserving it. As investors, we can play the gold market in the same way that the central banks do. We can use it to save wealth.
In fact, we can do even better than the central banks. The banks are buying bullion to stash in their vaults, and it's driving the price up. At the moment, the stock market doesn't seem to believe the shift in gold is sustainable. The price of gold mining stocks doesn't reflect the explosive moves going on in the bullion markets.
I believe that gold has established a new and sustainable price level. And that means gold stocks look cheap and have the potential for a great upward move.
I've mentioned Dominic Frisby's gold report many times. If you haven't got a copy, I think you should. It's a robust plan to build exposure that could prove very profitable over the years to come.
If you missed the recent spike in gold, then don't get mad get even.
Now is the time to buy gold stocks.
This article is taken from the free investment email The Right side. Sign up to The Right Side here.
Important Information
Your capital is at risk when you invest in shares - you can lose some or all of your money, so never risk more than you can afford to lose. Always seek personal advice if you are unsure about the suitability of any investment. Past performance and forecasts are not reliable indicators of future results. Commissions, fees and other charges can reduce returns from investments. Profits from share dealing are a form of income and subject to taxation. Tax treatment depends on individual circumstances and may be subject to change in the future. Please note that there will be no follow up to recommendations in The Right Side.
Managing Editor: Frank Hemsley. The Right Side is issued by MoneyWeek Ltd.
MoneyWeek Ltd is authorised and regulated by the Financial Services Authority. FSA No 509798. https://www.fsa.gov.uk/register/home.do
The Gold Profit Plan is a regulated product issued by MoneyWeek Ltd. The FSA does not regulate certain activities, this includes the buying and selling of some commodities such as gold. Advice relating to investing in gold related shares or products is regulated by the FSA. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary. Customer Services: 020 7633 3780
