Golden Opportunities Await for Savvy Investors
So far in 2017, gold prices have risen 16%. The yellow metal remains one of the best-performing assets of the year. I expect to see gold prices perform even better as more investors turn to gold.
As per the Commitments of Traders (COT) report for the week ending September 12, 2017, money managers were long on 270,413 futures contracts of gold. At the beginning of 2017, these investors were only long on 127,786 futures contracts of gold—hence an increase of almost 112% in their exposure to gold. (Source: “Commitments of Traders,” U.S. Commodity Futures Trading Commission, last accessed September 20, 2017.)
Each futures contract has 100 troy ounces of gold (one troy ounce equals 31.10 grams). So, when money managers are long on 270,413 futures contracts, they are long on more than 27.0 million troy ounces of gold. This amounts to roughly 841 tonnes. Assuming that total gold mine production is about 3,100 tonnes per year, 841 tonnes amounts to roughly 27% of the global gold mine output being technically tied up by money managers.
And that is just the futures market.
There’s also a rush to buy the physical metal itself. Between the first quarter of 2016 and the second quarter of 2017 (inclusive), gold-backed exchange-traded funds (ETFs) have added 702.2 tonnes of gold. (Source: “Gold Demand Trends Data Tables,” World Gold Council, last accessed September 20, 2017.)
These days, there are many factors that could cause a quick and significant jump in the price of gold. To name a few:
- North Korea tensions
- Stress on the derivative markets as interest rates continue to rise
- A bond market collapse (also because of rising interest rates)
- Political uncertainty in the U.S. (a volatile president and uncooperative Congress)
- The crashing U.S. dollar
Dear reader, the reasons to remain bullish on gold prices continue to mount, and that’s why I believe gold prices could easily hit $2,500-an-ounce over the next two to three years. Remember, the gold market is fairly small when compared to the stock market or the bond market. It doesn’t take much of a shift in demand for gold to send its price soaring.
Also, I can’t stress this enough: as gold’s fundamentals improve, it may be a good idea for investors to pay attention to gold mining companies. They remain suppressed amid investor disregard for them. As gold prices rise, the shares of quality junior and senior gold mining companies will take off in price.