Gold headed to $2,000? Don’t bet against it

Gold may not yet be in a bubble, but chase it higher at your peril, writes The Motley Fool.

Investors are being whacked from all directions.

In the U.S., politicians are continuing to play silly games over raising the $14.3 trillion debt ceiling before August 2nd.

In theory, the U.S. will default on its debt if the ceiling is not raised, sending markets into a spin not seen since Lehman Brothers was allowed to go bust in 2008. It won’t happen of course, but it is adding to the general economic drama of the day.

In Europe, banking shares took a beating as Italian and Spanish borrowing costs hit new euro-era records. With bond yields above 6% in both countries, analysts fear they could reach 7%, a level widely considered unsustainable.

Happy gold bugs

The flight to safety took on new proportions, with gold rising above $1,600 an ounce, its 11th consecutive day of gains, the longest rally in 31 years.

The gold bugs are having a ball. Generally pessimistic in nature, rather than celebrating their wealth, they’ll now confidently be predicting economic and monetary Armageddon is just around the corner.

At least it makes them feel good, for the time being, although one can’t help but think they’ll only really be happy when gold is trading at $5,000 an ounce, the world’s banks are all bust, paper money no longer exists, we have rampant inflation, and we all have to live off rations of baked beans, tomato soup, potatoes and bread.

Each to their own. As you may have guessed, I’m not a huge fan of gold as an investment.

Charlie Munger, Warren Buffett’s sidekick, thinks the same, saying in September 2010…

“…I don’t see how you become rational hoarding gold. Even if it works, you’re a jerk.”

No ambiguity there from the billionaire Munger. Like Munger, we prefer investing in individual stocks rather than buying a very heavy yellow metal that has no utility.

Of course, in times like this, with world stock markets on the nose, the last thing investors are thinking about is buying individual stocks, unless they are piling into gold stocks like Newcrest Mining (ASX: NCM), Kingsgate Consolidated (ASX: KCN) and St Barbara (ASX: SBM), for example.

Move aside carbon tax

All this doom and gloom, and the dash to gold, hasn’t stopped some companies going on a buying spree.


BHP Billiton’s (ASX: BHP) $15 billion bet on rising energy prices with its purchase of Texas shale gas producer Petrohawk.

Hanlong Mining of China’s proposed $1.4 billion bid for iron ore junior Sundance Resources (ASX: SDL).

Santos (ASX: STO) agreeing to buy NSW coal-seam gas player Eastern Star Gas (ASX: ESG) in an all-share deal valued at $924 million.

What carbon tax?

Tough times ahead

Back on terra firma, the non-mining economy is clearly struggling, as emphasised by David Jones’ (ASX: DJS) dramatic, rapid and unprecedented deterioration in trading.

Investors, already facing a stock market down close to 10% from its April highs, might not be out of the woods. The Australian Financial Review says…

“Investors could be facing the toughest reporting season since the end of the global financial crisis…”

It could be that Westpac’s (ASX: WBC) chief economist Bill Evans is right that interest rates will be cut by up to 1% over the next year. I wouldn’t bet against it.

No silver lining

But, not every interest rate cut has a silver lining, with Westpac also predicting unemployment could rise from 4.9% now to 5.7% next year.

No pain, no gain.

On the bright side, if all that were to pass, the AUD would weaken, manufacturing might pick up, inbound tourists won’t find our country so damn expensive, and stock prices might rise.

If only the future were so clear.

As stock markets wobble and the gold price heads to the stratosphere, it’s tempting to bail out of the former and pile into the latter.

Gold bubble? Not yet.

And who knows, the gold price could be headed even higher. Bubbles have a habit of getting bigger and bigger than you could ever have imagined, and gold arguably isn’t even in bubble territory…


Gold $2000 anyone? At the rate we’re going, it feels like we’ll be there before the end of next week.

I wouldn’t bet for it, but nor would I bet against it. Instead, I’ll just keep on concentrating on searching for good companies trading at cheap prices.

Call me naïve, call me a Motley Fool. Warren Buffett has made an investing fortune being greedy when others are fearful. If it’s good enough for him, it’s good enough for me.

Of the companies mentioned, Bruce Jackson has an interest in BHP Billiton and Westpac. The Motley Fool has a golden disclosure policy.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!