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4 Reasons Gold Will Remain Shiny

|Includes: DGL, SPDR Gold Trust ETF (GLD)

By Kevin Grewal, Editorial Director at www.SmartStops.net
 
Gold fell to a two week low after an unexpected dip in existing home sales put a damper on economic recovery and put inflation expectations into questions, but there are plenty of indicators suggesting that the precious metal is far from being overbought.
 
The temporary rise in the U.S. Dollar which scuffed gold's protective appeal against inflation, the decrease in demand for the metal in jewelery and higher scrap sales still hasn't put much of a damper on investment demand.  Many believe this is temporary because the fundamentals of the dollar remain weak.  Additionally, many investors are still piling into gold in fears that when the velocity of money picks, a spike in inflation will follow.
 
A third indicator that the shiny metal is still high in demand is that retail investors aren't the only ones hoarding gold.  In the second quarter of the year, China bought nearly 600 tons of gold and Russia owned nearly 100 tons.  Experts believe that these two nations are buying gold in fears of their exposure to the U.S. dollar and a method to add diversification. 
 
The fourth reason gold will remain attractive is because the supply of gold is starting to diminish.  Over the past ten years, the world's central bankers have been sellers of gold, however, in the second quarter of the year the tables turned and they became net purchasers of gold.  Supply is also being hindered because the amount of gold worldwide has been contracting. In fact, mining production has been on the downward slope since 2001, meaning, simply, there is less gold to go around.
 
In a nutshell, the recent decline in gold was a hiccup and the metal will remain attractive in the near future.  When investing in gold, one must keep in mind the risks that are involved.  To help mitigate these risks, an exit strategy is important.  An exit strategy which identifies price points at which an upward trend in gold could be coming to an end can be found at www.SmartStops.net.
 
To access gold, investors should look at the SPDR Gold Trust (NYSEARCA:GLD) up 22% from its January low of $79.79 to close at $97.55 on Thursday, with a SmartStop of $95.75.
A second ETF to look at is the PowerShares DB Gold (NYSEARCA:DGL), which closed at $35.74 on Thursday, up 21% from its January low of $29.50, with a SmartStops of $35.13.