Gold will be a solid investment, climbing on average of 10 percent to 30 percent over the next couple of years regardless of whether the Federal Reserve halts injecting liquidity into the financial system, says Michael Fuljenz, president of Universal Coin & Bullion in Beaumont, Texas.
The Fed is due to end a second round of quantitative easing (QE2), a $600 billion bond buyback designed to flood banks with money and spur more robust economic activity.
That policy weakens the dollar, and a weaker dollar often sends investors flocking to gold.
So far the Fed has said there would be no third round (QE3).
Even if the Fed decides the economy can stand on its own, there is enough debt out there in the U.S. and elsewhere that gold will continue to serve as a safe haven for investors worldwide concerned with weak paper currencies.
So buy now.
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“I can see gold increasing 10 to 30 percent a year over the next couple of years,” Fuljenz tells Newmax.TV.
“I think QE2 and QE2 have been very positive for gold because they basically devalued the currency of this country. As the debt continues, with or without a QE3, we will continue to see an overall rise in gold.”
Americans go to the polls in 18 months to elect a president, and Republican political debates are already under way.
Whoever wins the White House must work to narrow yawning budgetary deficits, and if they do and the dollar rebounds, don’t rule out the yellow metal.
“Even with a better government and a reduction in debt, the supply-demand factors, concerns about war or political unrest, and all the many factors, and even if the economy improves I think gold will still continue to perform.”
Supply issues are especially key.
With demand for gold on the rise, especially through new investment vehicles like exchange-traded funds rolled out in 2003 that give smaller investors a window to invest, one would think mines would be scrambling to dig for gold and sell it in such a bull market.
Yet mines can’t open for business overnight, and U.K. financial institution Standard Chartered has predicted that gold could jump possibly as high as $5,000 an ounce from current levels over $1,500 as supplies remain tight.
“There are very few large gold mines set to commence operation in the next five years,” says Standard Chartered analyst Yan Chen, according to CNBC.
“The limited new supply comes at a time when central banks have turned from being net sellers to significant net buyers of gold. The result, in our view, will be a gold market in deficit, even assuming flat growth in demand. With the supply-demand balance so out of kilter, we see the gold price potentially going to $5,000/oz.”
Fuljenz agrees supply issues will be a factor, but says calls to return to the gold standard, more recently made by publisher and one-time presidential hopeful Steve Forbes, will not become a reality.
“I see gold as a wealth-preservation insurance for your assets to have gold because of the valuation of currency and to the supply-demand fundamentals that favor gold as an investment.”
One curious aspect, Fuljenz points out, is the lag that mining stocks have experienced in relation to the price of the metal.
“The interesting thing about mining stocks is they haven’t gone up like gold has during the last five years. Typically, areas like rare gold coins and mining stocks have outperformed gold in bull markets in gold. That hasn’t occurred yet,” Fuljenz says.
“I do expect as the economy improves, mining stocks and areas like collectible rare gold coins will perform better like they have done in previous gold bull markets.”
Some states such as Utah are passing laws to allow gold to be used as a legal tender, moves that are largely symbolic, Fuljenz says.
Nobody is going to use a $50 gold coin to exchange for a $50 bill if that coin, when valued as a metal, is worth closer $1,500, Fuljenz says.
Dealing with Dealers
Buyers and sellers of gold coins are coming out of the woodwork lately now that prices have spiked.
Those interested in doing a little buying and selling should do a little homework on their dealers first, as there are some out there buying gold for as little as 5 cents on the dollar.
Find out if a dealer is accredited by the Better Business Bureau. Make sure he or she is an authorized dealer of the two leading coin-grading services, NGC or PCGS and look for awards won or some other recognition from peers.
“You want to look at any awards, accreditations — do they have too much to lose to treat you improperly? It all starts with knowing who you are dealing with,” Fuljenz says.
Anthony Weiner, the disgraced New York Democratic congressman who has gained notoriety for sending explicit images digitally to various women, had sought to regulate the sector.
While there may be a need for some licensing requirements, Weiner’s calls for hefty regulations were the wrong ones.
“What I would hope is that any licensing that is done is done in conjunction with leading coin organizations and experts. Unfortunately, Anthony Weiner was not working well with leading experts and organizations to make sure the bills that were to be written were fair for both the consumer and to the dealer.”
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