John Rawlins share some long-term plays in the commodity sector....
Go for the Gold
02/24/2014 9:00 am EST
To be sure, anyone who owns gold or gold stocks has surely had their patience tested in the past year, as the metal fell to a three-year low, even as the stock market climbed into record territory, observes Stephen Leeb in The Cash Cow.
We nevertheless remain exceedingly bullish on gold and recommend that all investors own at least a modest position in either, physical gold (i.e. coins or bars), or SPDR Gold Shares (GLD), each share of which represents one-tenth an ounce of the Midas metal.
With the drubbing it took last year, the metal is now more oversold on a long-term basis than at any time in the last 30-plus years.
In and of itself, this fact makes gold an interesting speculation, as markets tend to revert to the mean, and the metal is likely to rebound from its current extreme condition. But there's a lot more to the story.
The huge decline in gold prices in 2013 coincided with a nearly 500 metric ton outflow of assets from the SPDR Gold Shares, the largest ETF devoted to the precious metal.
To put this into perspective, total global gold production last year was on the order of 2,700 metric tons. But while Americans were bailing on the metal, demand from Asia, particularly China, has gone through the roof.
China is the world's largest gold producer and that country kept, virtually, all of the estimated 430 metric tons it mined last year for itself. In addition, in the 12 months ended November, China's gold imports through Hong Kong topped 1,131 metric tons.
Keep in mind, this is the only publically available data on Middle Kingdom gold imports; most likely, it brought in much more of the yellow metal through other channels. Just from what we know about, however, China consumed a staggering 58% of the world's gold output in 2013.
Should China's frenetic buying spree continue (and we think it will), and if American selling were to dry up (also a very real possibility), gold prices could rise quickly and significantly.
Whether the move begins in the next month or two, or a year from now, we can't say. But it's a good bet it will occur. And with gold trading around its marginal cost of production, the downside risk from here, while you're waiting, is minimal.
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