“This
is the first time since 2001 that gold and silver stocks have been reasonably
priced. Not cheap. But reasonably priced in terms of the underlying economic
projects at current gold prices.”
These
were the words of Mr. Rick Rule, Chairman and Founder of Sprott Global Resource
Investments, as he spoke with SmallCapPower.com
in a recent interview (watch
it here). His words seem to be a call for investors to carefully
scrutinize the gold investing world. In his interview, he discusses that
precious metal prices have only ever been reasonably priced twice in his career
and both times they were indicators for investors to take action. But Mr.
Rule’s words were just that – they were words. Investors should always do their
own lengthy due diligence before looking into investing. So the question
begs to be asked: Does the market reflect opportune conditions for gold?
The
answer is likely “yes.” The market is quite favorable for gold for a number of
reasons. Primarily is the growing influence of Russian troops on the border of
Ukraine. Simply put, the increase in Russian involvement with the Ukraine
border has put investors on edge. Add to the phobia the recent Canadian
sanctions on Russia accounts for investors seeing certain stocks as risky and
selling them for a safer option (gold and bonds). This of course contributes to
a rising gold price. On Wednesday, the TSX gold sector was up about 1.6%. The S&P/TSX
composite index rose 14.38 points to 15.202.09. This accounted for investors
pushing the December bullion ahead US$22.70 to US$1,306.70 an ounce. What we
are seeing is an array of external geopolitical issues affecting the price
range where gold is currently operating in. Since mid-June, investors
have seen gold fluctuate in the midst of tensions in the Middle East as well as
Ukraine. The cherry on top was really speculation over U.S. interest rates.
Some data would hint at a higher interest rate, making gold fall while the
aforementioned macro issues would accelerate price.
As
of Thursday, buying has stagnated in compliance with prices trading at north of
$1300 an ounce. Speculation is really the main proponent behind a sluggish
summer. Investors are expecting the prices to drop in the coming months and are
holding off purchases for the immediate future. According to CNBC, holdings
SPDR Gold Trust, which is the world’s largest gold-backed Exchange-Traded Fund
fell 2.4 tons to 797.55 tons yesterday.
Speculation
isn’t only coming from investors. On the contrary, what we are seeing are
precious mineral analysts predicting the opportune and idealistic conditions in
which gold will thrive. Commodity strategists Mr. LaForge and Mr. Pies
highlighted that low gold volatility and a declining interest rate may be the
right recipe for higher gold prices. On a blog on Barron’s, both Forge and Pies collectively wrote that low
volatility in gold prices has meant good things for investors. It is high
volatility that is bad for gold. This year, the prices have been very closely
bracketed between a certain range. The duo also details that gold has
traditionally been a “haven trade” in the sense that investors usually turn to
gold post unfavorable stock conditions.
The
bottom line boils down to one factor. Speculation. No one can say for certain
when the exact appropriate time to sell or buy would be. If we look at the
situation in Ukraine, it is clear that right now people are opting out of stocks
and investing in gold and bonds but who is to say that conditions won’t improve
next week? How many days or weeks the tensions will endure is really anybody’s
estimate.
Disclaimer: This article was posted with the permission
of a third-party contributor and the opinions contained therein do not
necessarily reflect those of Smallcappower. Smallcappower does not endorse
any investment advice provided by these third-party contributors.
Please consult your investment advisor before
making any investment decisions. Ubika Corporation and its divisions
Smallcappower, Ubika Communication and Ubika Research are not registered with
any financial or securities regulatory authority in Ontario or Canada, and
do not provide nor claims to provide investment advice or recommendations to
any visitor of this site or readers of any content on this site. – See
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