GLD: One Reason I Still Like Gold
Typically, commodity cycles are driven by supply, not demand.
World gold production fell by 1% in 2007, according to the latest Gold Survey from GFMS. Gold prices have risen to new highs this year, but fresh supply has been held back by a global shortage of mining professionals and equipment. China, where gold output rose by 12% last year, supplanted South Africa as the world’s number-one producer—a position it had held for more than a century.
Although a recession in the US could take a bite out of demand for gold, it won’t help the supply any. Inflation is still higher than the Fed has historically been comfortable with, and that too seems unlikely to change much in a recession. There seems to me to be more inflation risk than is being priced into most assets, so I’m keeping 10% of my own assets in yellow metal.
Disclosure: Long GLD
Disclosure: Author is long STREETTRACKS GOLD (GLD) at time of publication.
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