Gold fell to a five-year low last week, sparking talk that the precious metal no longer is useful as an investment vehicle. But don't believe the hype, says Forbes contributor Henry To.
Gold traded at $1,130 an ounce Friday. "With gold’s recent decline to below $1,100 an ounce, I believe today is one of the best times to own gold," To writes on Forbes.com.
Gold represents "an attractive long-term investment," he says.
The precious metal has slumped amid signs of U.S. economic strength, expectations that the Federal Reserve will raise interest rates as soon as next month and the dollar's recent gains.
But To sees several reasons why gold should rebound.
- Gold production will fall over the next few years. Already, output dropped 4 percent in the second quarter from a year earlier, according to the World Gold Council.
- Rising inflation. Though U.S. consumer prices climbed just 0.1 percent in the 12 months through June, "the tightening job market, increased lending, and higher minimum wages all point to higher inflation in 2016," To writes.
Albert Edwards, head strategist at Societe Generale, is bullish on gold too, saying its current weakness creates the best buying opportunity since the 1970s, when the metal surged from $100 to more than $920.
“Western central banks have set us up for an even bigger version of the 2008 great financial crisis/recession,”
he writes in a report obtained by Newsmax Finance.
“This time, rock-bottom interest rates and large fiscal deficits will mean only one thing: QE [quantitative easing] will be stepped up to such a pace that you will hear the roar of the printing presses from Mars. Gold is a must-have holding in that world.”
Central banks around the world have used quantitative easing—mostly bond purchases—to keep interest rates down and stimulate their economies. The Federal Reserve finished its QE last year, but the European Central Bank and the Bank of Japan still have large QE programs in place.
The recent drop of commodity prices to 13-year lows will keep the pressure on central banks to ease, Edwards says.
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