Jim Rogers’s View On Gold
Some say that when everybody, from your welder to your beautician, starts advising that it is the time to invest in a particular security, it is most likely the opposite. Many investors have entered the gold market and there is now a lot of talk about a possible “gold bubble.” Indeed, gold prices have gone up a lot—still, not as much as have the prices of some other investments.
However, as it was indicated in one of our previous newsletters, gold, in the inflation-adjusted terms, is nowhere near the previous highs. What’s more, despite the increasing appeal of gold among the broad investment community, the fact that everybody is talking about gold as a preferred investment has not deterred some of the most renowned institutional investors and financiers to continue to buy gold at the current prices.
One of such financiers is Jim Rogers, who continues to advise investors to invest in gold, and, in particular, to buy gold bullion.
Jim Rogers, who earned his reputation as a cofounder of the Quantum Fund with George Soros, has been bullish on gold for a long time. For several years, he has been accumulating gold bullion, along with other precious metals, including silver, platinum, and palladium. His arguments in favor of gold are simple and logical: the investors’ concerns about inflation, ignited by the excessive supply of the U.S. dollars, which is undermining the value of the greenback, support the argument in favor of the yellow metal. His advice to buy gold bullion is therefore based on the assumption that gold prices at the current levels are still attractive, given the prospect of higher inflation in the near future, which will drive gold prices much higher from the current levels. Therefore, in his opinion, gold is undervalued at the current prices and, if adjusted for inflation, it should be hovering around $2,000 per ounce.
Jim Rogers is generally bullish on all commodities—and especially on precious metals—for several reasons. First, the general scarcity of commodities will increase their value over time. If the world’s economies perform well, an increased demand for commodities will boost the prices. This is the most likely scenario given the expected robust performance of the emerging markets, most notably of Brazil, Russia, India, and China. A robust economic growth in these countries will also boost the affluence of their citizens, thereby increasing the physical demand for gold and silver bullion, especially in China and India, which have a high demand for gold and silver jewelry. On the other hand, a weak performance of the global economies will require an increased supply of the paper currencies, which will erode the values of those currencies, thereby increasing the appeal of gold as a store of value.
Hence, based on the arguments above, gold will continue to shine in the years ahead. Regardless of a recent spike in prices, the current price levels do not suggest that gold will lose its appeal among the investor community. On the contrary, it is still maintaining its allure among the most insightful investors, who continue to propagate the expected outperformance of gold as an investment asset. Therefore, investors who buy gold bullion should rest assure that their investments will not only preserve their capital, but will also produce strong investment returns in the future.
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Newsletter of the 31st December 2009