The price of gold has reached over $1,100 per ounce and it is expected to increase through 2011. The Federal Reserve is hesitant to raise interest rates because this could cause a collapse in the U.S. financial system. However, not raising these rates causes the value of the dollar to weaken. In times like this, investors turn to gold and other precious metals as a safe haven.
As gold prices move higher, experienced investors know that their gold stock holdings will not move in a straight line. Though forecasters remain optimistic about future increases in the price of gold, no one can be certain what will happen. Outside factors such as investment and fabrication demand, amount of gold reserves that central banks could release, and mining production each act on the price of gold. However, if historical trends are any indicator, the price of gold should continue to rise due to recent government fiscal and monetary actions around the globe.
Some experts believe that the best profits to be made in this gold bull market come from shares of gold producing stocks. Though gold exchange traded funds are doing well, shares in gold mining companies are doing even better. Between October 2008 and early January 2010, the GLD ETF increased in price by 58 percent. During this same period, the shares of mining companies in the Gold & Silver Mining Index rose by 168 percent.
Investors sometimes seek the safest form of precious metals holdings so they buy gold coins or gold bullion bars. These are not the most liquid forms of investment in gold and in a rapidly fluctuating market, that factor can translate to a loss of some profits. Purchasing gold stocks provides an investor with the additional liquidity so necessary today.
Buying gold stocks in mining companies, Gold ETFs, and shares of stable companies involved in the gold sector could result in a windfall. If the price of gold continues to climb, selling these shares at the right time may provide an investor with a nice nest egg. When the price of gold drops sharply, reallocations in the portfolio can be made.