5 Reasons Why Gold is Finally a Buy Again

James DiGeorgia

This new glitter in the gold market is catching even the most-seasoned precious metals analysts and economists by surprise.

That’s because gold, or any precious metal, is not supposed to rise when the U.S. dollar is strengthening.

Gold is also not supposed to rise when inflation is as low as it is right now in the major industrialized nations.

Not only is gold rising, but it’s doing so pretty strongly, too.

Back in 2004, I wrote a book called “The New Bull Market in Gold.” And the action I’m seeing right now makes me think we’re on the cusp of a “new, new” bull market in gold.

Here’s why …

It’s Time to Make Some Real Money in Gold!

My trading partner Geoff Garbacz and I use what we call a “quant” approach to watch the markets.

We measure valuation, direction, intensity and sentiment for thousands of assets. This helps us to pinpoint for our subscribers when it’s time to buy, sell or hold.

And when it comes to gold, the picture using this analysis has changed dramatically in the last few weeks.

That’s because, at a time when gold should be trading flat (from an economic standpoint), instead we are getting a key “buy” signal in gold.

Today I’d like to share with you five reasons why it’s set to go higher from here …

Reason #1: Investor sentiment has swung solidly bullish for the first time in the last 3 years.

Geoff and I have been using market-monitoring software to follow sentiment in gold.

It includes a “Triggers” screen to determine key turning points in markets. These triggers determine sentiment and tell us, in turn, whether sentiment is saying to buy, sell or hold.

There are six signals in the “Triggers” screen. When three or more of these signals rise above the underlying moving average, that’s bullish.

Now, however, we are at a point where five of the six sentiment indicators are solidly bullish …

By the time the sixth trigger signals a “buy,” gold could be trading above $1,350 an ounce!

Take a look at this chart of the iShares Gold Trust (IAU), which trades at 1/100th of the value of gold.

Chart 1
Image Source: ErlangerChartRoom.com

Reason #2: Low Interest Rates.

In an environment where you pay a bank to hold your money for you and you collect little to no interest — gold represents a viable alternative to the U.S. dollar.

“Carry rates” for gold are now among the lowest in modern history. Low carry rates allow gold buyers to finance gold holdings for 2% to 3% a year.

Borrowing at low interest rates to finance gold purchases is starting to increase among investors, hedge funds and money managers. I expect this trend to continue as gold prices gain traction.

Reason #3: Unlike oil, there are have not been any new large gold mines discovered in about a decade.

In recent years, new technology has successfully pinpointed hundreds of millions of new and viable oil properties, especially in North America.

However, nothing like this has happened in the gold mining industry.

The truth is, the only thing that’s been happening in the gold mining business is that the all-in cost of producing gold is still at roughly $1,000 per troy ounce.

This is true even in countries that sell gold for dollars, and pay labor and other costs in cheaper local currencies.

The high cost of mining gold, and depressed market prices since late 2011, has dried up an increasing number of gold mine expansions and practically killed exploration.

Reason #4: Trillions of dollars of new wealth chasing basically the same amount of gold.

The Federal Reserve launched quantitative easing in 2008. Since then, the U.S. stock market has climbed from about 8,000 to now almost 18,000.

Between Federal Reserve injecting liquidity in the market and about $1 trillion in stimulus provided by the U.S. government, there’s a flood of money in the U.S. economy.

Now Europe is employing a similar QE approach, and euro-zone members will have to implement a stimulus approach country by country. In the end, there will be trillions of new euros put in the system.

If even a small amount of this large amount of this new money finds its way into gold, we will likely see $1,500 gold by the end of the year.

Keep in mind this is cheap money — trillions with the existing residue of U.S. dollars injected. Regardless, money-printing and monetary expansion is the fuel for bull markets in gold!

Reason #5: The Growing Risk of an Iranian-Israeli War. Israeli Defense Forces recently killed a key Hezbollah leader and an Iranian general who were in the process of planning an invasion of Israel.

Iran and Hezbollah are now threatening retribution and war, which is what spurred the Israeli/American military operation in the first place!

If Israel is attacked by Hezbollah, much less Iran, the response may be to reduce their nuclear reactor and intercontinental ballistic missile (ICBM) programs to dust.

Depending on the size and strength of the weapons Israel uses to respond to future attacks, we could see international investors rushing into gold and not the U.S. dollar as a safe haven.

There are plenty more reasons to own gold, not the least of which is that it’s an excellent store of wealth. Even better, it’s something tangible that you can reach for and use in a time of crisis.

However, the five reasons I’ve given above are driving this “new, new” bull market in gold.

But there’s one more outlier that could give it a turbo-boost higher …

Bonus Reason: The Lone Wolf Syndrome.

This may well be the one of three most-powerful catalysts driving gold back to a bullish sentiment.

The danger of small terrorist suicide attacks has become an everyday global reality. Consider the Charlie Hebdo attacks in Paris earlier this month by three radicals.

This is just part of a long string of increasingly brazen attacks that have been taking place throughout the Middle East and Africa.

Bombings, kidnappings that become beheadings, and public ambushes of everyday citizens have accelerated in both numbers and viciousness in recent years.

And these “Lone Wolf” terrorists are being recruited in plain sight, too.

Remember the Boston Marathon bombing on April 15, 2013, that killed three and injured 264? The brothers responsible were recruited by terrorists on social media!

Radicals are adept at finding these “lone wolves” who are willing to travel to the Middle East’s most dangerous places for training.

These lone wolves can gain easy access to chemical, bacterial and even nuclear weapons. Plus, countries like Pakistan, North Korea or even Russia can supply anti-aircraft and heavier weapons. All of these weapons are way too easy to buy and deploy.

Internet recruits have staged attacks in France, England, Germany, Spain, Italy, Belgium and virtually every Western-aligned nation. The latest attacks that took place in France and now Australia are just the latest and most publicized by the media.

These attacks can happen anywhere and almost always end in suicide of the gunmen. Gold’s rise may well be as the result of investors and speculators believing much worse is coming.

All we need to see is one especially bad event — and I could easily see gold skyrocketing above $1,500, even $2,000 overnight if the attack is bad enough.

Bottom line: Gold is gearing up to go higher. Make sure you’re going along for the ride!

Always watching your chickens,

James DiGeorgia