At face value Gold was a pretty good investment in 2007 as well as for the previous several years. The trouble that has plagued many Gold investors however, including us to some extent, is that the majority of the Gold mining companies haven't been as profitable to hold as the physical metal itself.
Many reasons have been cited for this but we think the most logical is rampant inflation in the cost of producing an ounce of gold, silver or any other metal. If you read the annual reports of the mining companies (not just those in the precious metals sector) they're all complaining about rising production costs eating into their margins.
With the luxury of hindsight the majority of Gold investors would have most probably done better by investing in the physical metal itself rather than mining stocks. Will this trend continue in 2008? Yes, I think it's likely unless the metal literally explodes on the upside.
For those who prefer to buy physical metal we like to use www.atsbullion.com in London who also offer an insured mail order service.
If you do want to buy physical gold the best value coins are always going to be the South African Krugerrands which have the smallest premium over the spot price of Gold. Remember, it's the gold you want not some pretty picture or engraving.
But whatever the case there's little on the horizon to suggest that the 7 year bull market in Gold is going to turn in 2008. In fact, $1,000 is most probably on the cards (current price $900) sooner than most people think.
$1,000 gold will certainly be an event but not something that most long term gold investors should get that excited about because the real target is around $1,650 which is about 80% higher than today's price.
Could $1,650 Gold Be Possible in 2008?
Yes, anything in this game is possible, but we think unlikely, more like 2009/10 when the world's governments will finally be forced to admit that the dangers of 'inflation pressures' which they've been warning about for so long are finally true - something that the man in the street worked out from 2006 onwards via the ever decreasing purchasing power of his wallet.
But like stocks, Gold is going to be very volatile in 2008, in fact we're 7/8 weeks into the new year and haven't had one of the famous gold smackdowns ($30+ down in a few hours) for several months.
If I was a betting man I'd put a fair amount of money that before mid-March we'll see Gold get sold viciously for a $40+ one-day drop (note, it's always at the start of the New York session).
These sell offs are generally good news for long term investors though as they shake out much of the hot money and short term operators as well as offering cheaper prices for investors to gently add to the metal or stocks.
