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After suffering what can only be described
as a depression-like bear market that saw gold fall to nearly
$250 an ounce, the gold market has risen over 60 percent.
Yet, outside of the metals and mining industries, virtually
no one has made gold part of their overall portfolio. This
bodes well for those of us who have felt $500 gold was not
a question of “if,” but “when?”
After parting ways from the metals and mining
industry in January 2000, I returned to the bullish camp
after visiting the 2003 PDAC Convention. There, I found
dramatic evidence that most metals had developed extremely
bullish fundamentals and mining and exploration stocks were
“dirt” cheap. Fast-forward to today, we find
metals and mining shares no longer cheap on average, but
still in a quite favorable fundamental and technical picture.
The rallies we have seen should continue well into 2005.
While base metals can continue leading the
charge, I suspect gold can move to the forefront as we get
into 2005. Why? There’s no doubt in my mind that China
is the driving force behind the base metals strength. And
while that strength can be tempered at times, the belief
China will implode is far-fetched in my book. This should
maintain a decent underpinning for base metals at least
through the first half of 2005. It’s the second half
of 2005 and/or who wins the U.S. elections that I believe
can move gold onto most investors’ radar.
The fall of the U.S. dollar is only a matter
of time in my way of thinking and it can only be beneficial
to gold. However, geopolitical concerns are what make headlines
and I’m afraid things can only get a lot worse before
any real hope of them getting better. Iraq may or may not
make it, but in my heart of hearts, the real problem in
the Middle East is Iran. Tehran just announced it has begun
converting tons of uranium into gas, a key step in developing
nuclear weapons. In addition, they announced that their
Shahab-3 ballistic missile, which can hit Israel, is now
operational. The International Atomic Energy Agency called
on Iran to cease all uranium-enrichment activities. Iran
has thumbed their noses to them and everyone who has chimed
in.
So why is Iran such a “hot” topic?
According to the U.S. State Department, Iran is the “most
active state-sponsor of terrorism in the world. It has deep
roots to terrorist groups Hezbollah and Hamas, and is known
to be harboring al Qaida operatives. There’s no way
the Israel government can live with a nuclear Iran. President
Bush clearly stated, “Our position is that Iran won’t
have a nuclear weapon.” So, if he wins, do his words
turn into a deed? If Kerry wins, will he see it the same
way? Or worse, will he appease Iran and make matters even
worse in the long run?
Gold has been one of the worse investments
for a long time. However, the lows of a few years ago are
now way behind us. The closer it gets to $500, the more
likely the “Don’t Worry, Be Happy” crowd
on Wall Street will have to sit up and take notice of it.
***
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