How to Play $10,000 Gold

“The world’s economy is a soft-paste porcelain vase set on a wobbly plant stand in the heart of an active earthquake zone”. Not only is that one of the best analogies I have ever read, but Jim McTague’s wording also hits the nail on the head for just how fragile our economic situation really is. Europe is stranded by mounds of debt from nations who can never seem to fully agree on what to do next, conflicts in the Middle East are only getting worse, and U.S. debt levels have recently surpassed that of our GDP, fantastic. But there is one positive takeaway for investors and that came from Ben Bernanke’s decision to implement yet another round of QE [for more economic news and updates subscribe to our free newsletter].

That takeaway comes in the form of one of the worlds most coveted commodities, gold. As the Fed continues to print money, gold will likely continue its climb as it makes its way towards historical highs. Some economists, like Peter Schiff, have predicted the precious metal will hit $5,000/oz. in the near future, while others have been as bold to say that gold is going straight to $10,000. While a timeline on these predictions is relatively muddy, are gold prices of this magnitude really possible?

From a macroeconomic perspective it certainly seems likely that gold has nowhere to go but up. While many are resting the fate of the country in whichever candidate comes out on top in November, the truth is that the damage has already been done. Our debt levels aren’t something that can be fixed in four years, and probably can’t even be fixed in eight. With the Fed continuing to dilute the money supply and a fiscal cliff on the horizon the U.S. seems like it is ready for a few rough years. Some argue that we will try to inflate our way out of debt, and if that is the case, gold will still see a handsome rise due to its ability to hedge against inflation [see also Why QE3 is Just Delaying the Inevitable].

But the U.S. is not the only thing playing into gold’s rise; a worry about emerging market slowdowns along with economic crises all around the world have painted the picture for some dark days ahead. While we are not saying that gold will hit $10,000 in 2013, we certainly are not ruling out the possibility. For those looking to make a play on the precious metal, we outline several options below.

  • SPDR Gold Trust (GLD): The world’s second most popular ETF, this physically-backed fund is home to more than $74 billion in total assets. Despite its popularity, we tend to like IAU better as a long term buy given that is has a nearly identical makeup to GLD but charges 15 basis points less for investment. That being said, the liquidity and tradeability of GLD are second to none, keeping it at the top of this list.
  • Barrick Gold (ABX): One of the most popular miners in the world, Barrick will offer an indirect play on the commodity. The firm has a market cap of $42 billion and currently pays out a dividend of around 1.9% [see also Three Reasons Why Gold Is Overvalued].
  • 3x Long Gold ETN (UGLD): Ready to put your money where your mouth is? If you truly believe gold is going to $10,000 this 3X leveraged product can offer some unbelievable potential. Note: this ETN is not for the faint of heart and should only be used by traders who fully appreciate its risks and volatility.

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Disclosure: No positions at time of writing.

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