Gold exchange traded funds have been weakening since October, with gold futures now testing the $1,600 level, but that has not swayed some staunch gold bulls.
Gold prices, along with gold miner stocks, have been weakening lately as investors favor stocks that will benefit from an improving economy. Additionally, the U.S. dollar has perked up, adding to the pressure on gold.
Nevertheless, one analyst believes the 12 year gold rally still has some legs.
"Neither President Obama's State of the Union address this past week nor the approaching Federal spending cuts dampen our long-term enthusiasm for gold," Jeffrey Nichols, Senior Economic Advisor to Rosland Capital, said in an emailed research note. "It seems that most other gold analysts along with many institutional traders and speculators, impatient with gold's recent performance, are throwing in the towel on the yellow metal."
Instead, Nichols points to seven long-term bullish drivers, arguing that "at worst gold's advance may be delayed - but there's still a good chance the price will record a new record high by year-end 2013 with $3,000 an ounce likely by mid-decade."
- Fiscal and Monetary Policies. Current accommodative monetary and "irrational" fiscal policies will devalue the U.S. dollar and fuel inflation, which will in turn lift gold prices.
- Eurozone Woes. Deepening recessions, high unemployment and pressure on the euro currency will continue to make gold an attractive investment for wealth preservation.
- China. China's demand for both gold jewelry and investments will continue to grow along with its long-term economic expansion, rising personal incomes, rising inflation expectations and pro-gold government policies. The country recently launched two gold ETFs on the Shanghai Stock Exchange.
- Other Asian Markets. Other traditional Asian gold markets, notably India, will also see higher demand for similar reasons to China.
- Central Banks. Global central banks are will continue to augment their gold reserves after overweighting the U.S. dollar and euro currency.
- The Gold Asset. In the eyes of retail and institutional investors, gold is gaining traction as a legitimate investment class. The number of gold investment products and channels of distributioins, such as gold ETFs, have helped investors easily access gold.
- Supply. The gold market will not see as much new gold enter, with little or no growth in world gold mine production over the next few years and important gold-mining countries, like China and Russia, keeping mined gold for their own domestic markets.
Some physically backed gold ETFs include:
- SPDR Gold Shares (NYSEARCA:GLD)
- iShares Gold Trust (NYSEARCA:IAU)
- ETF Securities Swiss Gold Shares (NYSEARCA:SGOL)
Max Chen contributed to this article.
Full disclosure: Tom Lydon's clients own GLD.