For years, financial advisors had trouble convincing individual investors that a portion of their portfolio should contain some metals--most prominently gold. For a long time, the stock market had produced some serious returns while gold sat dead in the water. Gold and the other metals had become a hedge and not a worthy investment-grade vehicle.
The only constant in the investment world is that things change. Today, gold is hitting record highs. We are in an environment of global industrialization in which many countries, most particularly China and India, are seeing their economies burst into the 21st century. Also, Brazil and Argentina in South America and Indonesia and Malaysia in Asia are among the countries experiencing an economic maturation process. The growth rates of their manufacturing and industrial industries along with the rapid expansion of their infrastructure will create a demand for metal, particularly copper and silver, unlike the world has ever seen. These burgeoning economies will need a tremendous amount of metals and other raw materials to build bridges, roads, new factories, office buildings, apartment buildings, and homes, as well as new shopping malls and stores.
This growth should last for decades and make metals a quality investment for the first time in a very, very long time. Prices will most likely continue to increase, and increase significantly. Price rises will probably be exacerbated because of recessions in the U.S. and Europe, and investors will likely be looking for alternative investments in places other than the U.S. and Europe that will deliver more aggressive returns.
We have already seen rapid rises in the price of copper and silver from large increases in demand that are occurring at a time when two of the largest-demand economies, the U.S. and Europe, are demanding less than usual. Just think what copper and silver prices will do when the U.S. and European economies improve and get back to, if not beyond, their normal demand levels! Prices are likely to go up for years.
Meanwhile, gold figures to be just as attractive an investment as the other metals and probably even more so for a number of reasons. As mentioned earlier, several countries are heading into a quasi industrial revolution. As these economies rapidly expand, growing pains are inevitable. With so many countries going through this process at the same time, the likelihood of a major currency or debt incident becomes much more likely. In times of currency or debt crisis like the one we are in now, gold becomes a very attractive commodity to own.
The main reason for this is that gold is probably the most universally accepted form of currency in the world. The shiny yellow rock has been coveted by civilization for as long as the written word has documented the history of mankind. And although it had lost its luster, recently with the European debt crisis and the growing problems with the U.S. debt level, gold has become the darling of the investment world again. Also, civil unrest and geopolitical incidents often push up gold prices. Civil uprisings in the Middle East that began in the spring are likely to continue and they will also exert upward pressure on gold's price.
Another factor that probably will become a major concern for years is inflation. Gold has probably been best known for its role as an alternative investment in times of inflation. To fight the recent recession in the U.S., the Fed has dumped tons of money into the economy, and that is going to cause inflation to heat up. Recent PPI and CPI numbers all point to inflation levels rising in the U.S.
What we all need to realize is that the situation is far worse than ever before. First, we have more cheap dollars in the system. Second, we have an extremely weak dollar and a national debt that is at epic and dangerous proportions. Last but not least, countries like China and India, with much bigger populations, are now and will be competing against us for raw materials and food like never before. Even countries like Indonesia that have workforces near the size of ours and much more natural resources of their own will one day be on a demand curve like ours.
Prices have nowhere to go but up, and inflation is definitely going to rear its ugly head in Godzilla like fashion. When this happens, gold and the other metals will truly become precious and more than just a hedge. They will become prime-time investments and will command respect.
Ron Ianieri is chief market strategist for the Atlas Precious Metals Exchange.