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3 Reasons to be Bullish about Gold

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When an asset class is beaten down in value, it is always worthwhile to investigate the possibilities of a rebound.

Sometimes a recovery is just not coming due to irreversible changes in the market. As Larry "The Liquidator" Garfield, the avaricious corporate raider in the 1990s movie Other People's Money remarked, "I'm sure the last buggy whip company made a damn good buggy whip."

But that is not the case with gold and silver -- as there are three reasons to be bullish for investing in these precious metals for the future.

It is always a good sign when a commodity's largest customer is willing to pay a premium. That is what is currently happening in India, the largest consumer of gold, and its demand for the yellow metal.

According to an article in The Wall Street Journal by Biman Mukherji and Debiprahad Nayak, up to $150 more per troy ounce is being paid above the international market price in India, the world's second-most populous country. Gold is not only used for investment purposes there, but also for religious and ornamental needs. It is part of the Hindu faith that buying gold during Diwalia, the Festival of Lights currently underway this week, brings good luck.

There has also been a shift away from exchange traded funds, mainly SPDR Gold Trust (NYSE: GLD) and iShares Silver Trust (NYSE: SLV), to the asset industry, as noted by Richard Pouldon, Executive Chairman of Wishbone Gold PLC (OTC: WISHY), a gold and silver exploration and production company with operations in Australia. This shift makes companies like Wishbone Gold , which released a very positive report about its holdings in Australia, and Yamana Gold (NYSE: AUY), a favorite of financial columnist Jim Jubak and others, attractive for the long term.

The future will also bring inflation due to global central banker policies, Pouldon also predicted. Historically, that has always been bullish for the price of gold and silver. Investors flee paper money that is declining in value for the sanctuary of hard assets. Speculators will then join in, further driving down the value of fiat currencies while raising the price of gold and silver.

That scenario has clearly taken place with oil, which has assumed a role as a safe haven asset. While it has not happened with gold and silver significantly, it certainly could -- due to the quantitative easing measures by central banks around the world that have resulted in the creation of trillions in new currencies without the corresponding economic growth to back the paper money with value.

It was not that long ago that Barron's ran a very positive article on Barrick Gold (NYSE: ABX), the second largest gold company in the world. But SPDR Gold shares are down almost 2.5 percent for the last week of market action, with iShares Silver trust off more than 3.6 percent for the same period.

If Pouldon is correct about investors moving away from exchange traded funds, which the market certainly evinces, and towards producers, then Barrick Gold, Wishbone Gold PLC, Yamana, and others should rally in the future.

Posted-In: Long Ideas Sector ETFs Wall Street Journal Barron's Small Cap Analysis Commodities Markets Media Trading Ideas ETFs Best of Benzinga

 

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