Gold Prices Presenting Great Opportunity Like Stocks in 2009
All the stars are lining up perfectly for a massive bull run in gold prices. Don’t ignore the signs; the yellow precious metal could surprise investors in a very big way.
Remember, for an asset to see an escalation in prices, there are certain things that must come true, or else the rise is short-lived. For example, you want to see the underlying fundamentals getting better, you want to see buyers coming in, and there need to be some catalysts that make it a compelling opportunity all of a sudden.
One of the best examples of this was the summer of 2009. After the stock market crash, there were a lot of things working in favor of stocks. The economy started to gain traction, and companies’ earnings estimates started to get better.
Also Read: The Gold Price Forecast 2018 Might Surprise You
In the midst of all this, there was one catalyst that really pushed investors towards stocks; the Federal Reserve was printing money and buying bonds. This caused investors to look for yield, and they fled to stocks.
If you didn’t look at stocks then and held the view that there could be another crash, you missed out on big gains.
When looking at gold prices now, they are severely undervalued like stocks were back in the summer of 2009.
What makes gold prices so compelling?
In these pages, I have harped over and over again; the supply side of the gold market is completely crushed. Miners are having a very hard time producing more gold. Don’t listen to what they are saying, look at their balance sheets. They are bleeding and costs are increasing.
As this is happening, the list of gold buyers continues to soar. India and China remain persistent buyers. We see central banks haven’t given up either. They continue to buy without any signs of stopping anytime soon.
Now, one has to wonder if there could be a catalyst that suddenly caused gold to be in need.
Where Are Gold Prices Headed Next?
Dear reader, I believe, the Federal Reserve could be the thing that sends gold prices soaring.
Here’s why. In its most recent meeting, the Federal Open Market Committee (FOMC) showed significant support in the idea that the Fed would sell the bonds it holds on its balance sheet.
How much are these bonds worth on the Federal Reserve’s balance sheet? Around $4.5 trillion.
Remember, when the Fed was buying these bonds, investors were buying bonds as well. What do you think investors will do when the Fed sells the bonds? It isn’t irrational to believe that investors could be selling their bonds as well.
With this, we could have a bonds market crash on hand.
Know this, the money that exits the bond market will have to go somewhere. Also, bear in mind that the bonds market is immense.
Surely, there’s a possibility that some money might rush to stocks. But, what if those fleeing the bonds market look for safety in something that stores value in times of crisis? Gold could give them safety. And, in the midst of this, we could be seeing a massive jump in gold prices.
Why could gold prices spike higher? Don’t forget, the gold market is fairly small. It won’t require a lot of money for the price to go higher.
My long-term readers know this; when gold prices move higher, mining shares soar. Despite gold prices being up over 15% year-to-date, mining companies continue to be ignored. If you look at the indices that track gold miners’ stock performance, they remain suppressed. This is where investors could make immense returns.