Run to the hills, buy a gun…and gold

Commodities trader Jim Rogers sees gold prices well beyond US$1,900 an ounce in 5-10 years

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published September 20, 2013 9:09 am AEST

That's pretty much the advice of renowned commodities investor Jim Rogers.

Speaking to the Daily Ticker, Mr Rogers says that gold will possibly drop to US$900 to US$1,000 in the next 1-2 years, but over the long term Mr Rogers says gold will soar well beyond US$1,900 an ounce in five to ten years, beating its record of US$1,920 an ounce set in September 2011.

His reasoning is massive currency debasement around the world, with "every major central bank in the world printing lots of money, plus war, chaos, riots in the street, governments failing, few things like that." Despite that forecast, Mr Rogers warns investors not to consider investments in gold – or any other asset class – as 'safe'. "I would never use the word 'safe' when I'm speaking about investing," he said.

As governments print money, inflation tends to rise, and gold is often thought of as a hedge against inflation. So as inflation rises, the gold price, in theory, should rise. The problem with inflation is that it can cause all sorts of issues for consumers and households, and could lead to riots, chaos and governments falling – according to Mr Rogers. While his view is extreme and the scenario unlikely, it's clear that the world has entered an unprecedented stage.

The US is pumping US$85 billion into its economy each month, and has debt measured in the trillions, with no end in sight. Japan has followed suit, in an attempt to get its economy growing after stagnating for more than 20 years. Europe seems to be lurching from one crisis to the next, whether its Greece, Portugal, Ireland, Slovenia, or larger economies like Italy and Spain. While Europe appears dormant for now, at any moment it could re-erupt.

The good news – for shareholders of gold companies such as Newcrest Mining (ASX: NCM), Resolute Mining (ASX: RSG), Regis Resources (ASX:RRL) and Beadell Resources (ASX: BDR) at least – is that as we saw recently when the gold price crashed, demand from retail consumers skyrocketed, holding up the price. Should gold fall to ~US$1,000 an ounce, demand from the retail sector is likely to once again spike.

Foolish takeaway

Many well-known investors have stated that gold has no intrinsic value, but more than 50% of all gold produced each year ends up as jewellery, with another 28% going to retail investors in the form of gold bars and coins. However, investing in physical gold is a completely different ball game to investing in gold mining stocks, where shareholders face many more risks.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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