A $5,000 gold price isn’t unrealistic, many experts think. Indeed, it’s possible. The global economy is struggling. And there’s plenty of political uncertainty, too. Here’s how I’d invest now to take advantage of the gold rally that is likely ahead.
Why will gold prices surge?
Well, to start with, the macroeconomic recovery is quite slow. We all know the coronavirus pandemic was a great blow to the world’s economy. So, central banks, including the Bank of England and the US Federal Reserve, aren’t going to change their monetary policies any time soon. This means central banks will keep their interest rates near zero. They’ll also keep flooding the financial system with cash. That alone is bullish for gold prices since investors will seek to invest the cheap cash. But at the same time many companies’ profits will stay low for a while. When the economy isn’t doing well, many companies are struggling due to the lack of demand for their products or services. This will make many investors favour safe haven assets, including gold, I think. But this scenario is rather too optimistic, in my opinion.
There’re plenty of other factors to consider. First, investors all over the world should be worried about so much uncertainty around Brexit. It’s still unclear whether it’ll be a ‘deal’ or a ‘no-deal’ one. But the US situation is even more likely to fuel the gold price rally. Just think of the US-China trade tensions and the US elections. Any worrying news from these fronts will make investors rush to safe havens, I think. But how far can the gold prices rise? Well, Alissa Corcoran, Director of Research at Kopernik Global Investors, thinks gold could reach $5,000. She isn’t alone here. Billionaire Thomas Kaplan, head of asset management firm Electrum Group, also gave the price target of $5,000. I am not personally sure how far the gold prices can rise. But I’m highly bullish on the precious metal.
Here’s how I’d invest
Buying gold at every pullback might seem like a very smart move. But buying the shiny yellow metal has plenty of drawbacks too. First of all, the storage and insurance costs might be high. Secondly, physical gold doesn’t pay any interest or dividends.
But there’s a sound way to take advantage of the $5,000 gold price. I think it’s a good idea to buy gold miners’ shares. It’s prudent for UK investors to buy companies listed on the LSE to avoid currency fluctuations. My colleague Rupert wrote a wonderful article about Eurasia Mining. But I can assure you there’re many more companies available for investing. Here’re my criteria for choosing such companies. To start with, they shouldn’t be small or mid caps. They should be among the largest companies. Then, they should have long operational histories. Needless to say they should be profitable and have high credit ratings. Last but not least, they should also pay dividends. You might like to reinvest these dividends to buy more of your favourite companies’ shares. Here at The Motley Fool we offer numerous catalogues that can help you choose the best-in-class mining companies’ shares.
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Anna Sokolidou has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.