IAMGOLD Corp (USA) (IAG)

Why Gold Will Soar Over $1000

Posted Thu Feb 21, 12:36 pm ET
Posted By: Steve Reitmeister

I have read a number of research reports explaining why gold will top $1000 per ounce. Most of them detail very logical arguments based on the supply and demand dynamics that will lead to increases in gold prices. But I'm going to share some extra points that I think lead to this same conclusion:

- One Bubble Begets Another: The speculative excess of the stock market bubble of the late 1990's transitioned into a housing bubble in the early part of the new century. And now that bubble is bursting as well. So where do speculative investors turn to get outsized returns? We can already see some signs that the answer is gold.

- $1000 is a "Magical Number." We are so close that just from speculative frenzy the price begs to be reached. Just like $100 oil was a "magical number" that compelled buying pressure to reach that point.

- Marketers: If you are like me, then you get plenty of offers from investment companies marketing their service. I have seen a great increase in the frequency of offers for gold newsletters. I think they smell the "blood in the water," and want to get people on board while the getting is good. Many are talking about $2000 gold (now that's a real attention getter). Whether it's true or not is irrelevant. The point is that the marketers are finding interested parties to buy more gold newsletters, and from there they will pour their money into gold bullion and stocks. It can become a self-fulfilling prophecy for awhile. (By the way, Zacks does not offer any gold newsletters).

So if you are attracted by the fundamental story to gold and appreciate my points above, then it may be worth your while to profit from the potential rise of gold. Right now, gold is only 5% away from $1000. That is a pretty modest return if you just buy the raw commodity. However, gold mining stocks usually provide a return 2-3X greater than gold itself.

We currently have Zacks Recommendations of Buy on two gold miners: Barrick Gold (ABX) and IAMGOLD (IAG). Another decent option is to consider GDX, which is an ETF that owns the majority of gold mining stocks.

Gold is very volatile and will hop around a lot in price. Don't have too tight of a stop loss. Allow at least 12-15% on the downside. As it rises, you will want to adjust your stop accordingly. If we get this one right, it may blow past $1000, creating a sizeable return.