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Tuesday, April 19, 2016

Why You Shouldn't Doubt the Shiny Yellow Metal

Gold has been experiencing its best quarter in over 30 years. Should you be doubting the metal and is it wise to keep buying? See what this leading investor is saying here.

With the recent price fluctuations that gold has seen, many have been wondering what's next in store for the wise investor: can gold sustain its rally, or is its current strength a come-and-go hot money affair?

Speaking to CNBC in a recent interview, known gold guru George Milling-Stanley said he's leaning heavily towards the former. Milling-Stanley is a true gold buff, having stuck to the metal for 40 years in spite of naysayers – his faith paid off, as he now manages the $33 billion S&P depository receipts (SPDR) Gold Trust fund that's up 15% year-to-date.

His experience with the yellow metal also lets him refute these naysayers easily, especially since they tend to focus on gold's perceived lack of return. "For 40-something years, since I first got into gold investing in the 1970s, people have been saying it doesn't pay a return. Well, guess what? Not much else does these days, either. People are charging you to store money. [gold] GLD costs less at 40 basis points annually than holding Swiss francs," Milling-Stanley explains.

While recognizing the risks that hot money poses, he doesn't see it as responsible for gold's early-year success: "We think most people were dangerously underweight gold or out of the market altogether," he said. Instead of huge gains ahead, Milling-Stanley would prefer to see a moderate steady increase, predicting such thanks to demand "across the board" – including that from emerging markets – and stagnant mine production. "I would like to see gold go up steadily by about $100 in 2016, so to the $1,350 to $1,375 level by Christmas. That would be sustainable."

Milling-Stanley also mentions his four talked-about factors that have been keeping gold down in recent years. Each of them is now swinging towards the metal's favor: the dollar trade won't be as monolithic as before, the Fed is struggling to reach inflationary goals, equities are no longer posing a significant threat and investor sentiment is shifting. Milling-Stanley explains why the last point is particularly important: "A big factor is the change in the perception of risk, which has done a 180, even if the risks haven't changed. People are looking for risk-off assets. Risk-off trading was enough to give us a $200 rise. The perception of a riskier environment is liable to be what's governing here."

As for investing, the gold expert doesn't think anyone missed the boat: those who wanted to sell gold already did so at its $1,800 level, so there shouldn't be a surge in selling back or recycling until the metal goes a lot higher. And Milling-Stanley believes it can: "This thing could run. I won't say it's going to, but it could. It showed us in 2011 it could go up dramatically," he added.

Is gold the asset you can't hack, erase or delete? Read about this here.