Without more Fed steps to stimulate growth, and with more positive U.S. economic data, investors expect the dollar to strengthen which puts downward pressure on gold and silver prices.
But the long-term outlook for gold and silver is the same, and investors should instead take the Bernanke Effect as a key time to buy metals.
“This should be treated as an opportunity to buy, or if you already own but feel you don’t own enough, to accumulate,” said Money Morning commodities and mining expert Peter Krauth. “These two precious metals remain in a secular bull market and are integral to every investor’s portfolio.”
The Bernanke Effect on Gold Prices, Silver Prices
Gold and silver have been behaving like safe-haven assets in the weeks when the Fed releases statements on the economy.
But there are still plenty of investors who have bet on a bullish metals market. About $2.2 billion has poured into the SPDR Gold Trust ETF (NYSE:GLD) this year, according to XTF.com.
Famed hedge-fund manager John Paulson is among those betting big on gold. Paulson’s holdings in GLD make his firm the biggest stakeholder in this ETF, with a position currently valued at $2.9 billion. And recent filings showed that another legendary hedge-fund investor, George Soros, has nearly doubled his stake in GLD to 85,450 shares.
“None of the fundamentals supporting gold have gone away,” Krauth said earlier this year. “Instead, they’ve only become even more entrenched.”
Gold finished its 11th straight year of gains in 2011, and should keep going in 2012.
Time to Buy Metals – Copper, Too
Copper also fell Tuesday thanks to the Fed, slipping 5 cents to finish at $3.85 per pound.
Copper rose today (Thursday) on news that economic activity in the United States, the world’s second-largest copper consumer, will support higher copper demand this year.
The Philadelphia Fed economic index rose to 12.5 this month, up from 10.2 in February.
The New York Fed index also rose to 20.2, from19.5 in February. Both measures indicate U.S. manufacturing growth, which should continue as companies rebuild inventories and invest in new equipment.
In fact, news this week out of Chile shed more light on how mining issues could push copper prices higher. Declining ore quality at aging mines caused Chile’s copper production in January to fall 8% from the year before and a staggering 20% from December.
“China’s restocking came faster than expected and perhaps it will slow now,” José Pedro Fuenzalida, senior analyst at LarrainVial in Santiago, told The Financial Times. “But the production is so disappointing, it will be extremely supportive for the market balance.”
And it’s not just copper prices that will climb due to supply issues.
Soon virtually every substance vital to modern life will become enormously expensive and profitable for investors who know how to play it.
As Peter Krauth explains in his latest report, “today’s scarcity and soaring costs could spur the biggest investment gains in history.”
To read Peter’s latest free report click here.
News and Related Story Links:
- Money Morning:
Buy, Sell or Hold: Buy the Dips in Gold (NYSE: GLD)
- Money Morning:
Investing In Silver: How to Buy Silver Coins and Bars
- Money Morning:
Trading Silver with Options: How to Earn 127% in Four Months
- Bloomberg News:
Philadelphia-Area Factory Index Increases to an 11-Month High
- The Financial Times:
Chile’s mining woe supports copper prices
- The Washington Post:
Gold, silver prices plummet as Federal Reserve’s economic outlook dims hopes for more stimulus
Gold falls 2 pct as Fed easing hopes fade