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U.S. Global's Holmes sees gold zigzagging to $2,000
Tuesday, March 18, 2008
BOSTON -- Frank Holmes, chief executive officer at U.S. Global Investors, says that gold will hit $2,000 an ounce, and that while the move won't be straight there from current levels, investors should not be surprised by it.
Holmes noted that virtually all commodities have gone through their "inflation-adjusted 1980 price levels," with the notable exception of gold, and that to get to that range the price of gold would have to top $2,000 an ounce. Holmes said he expects a short-term pullback in gold -- based on a correction he sees coming in oil and a short rally in the dollar, both of which will impact gold prices -- but that the long-term trend will be strongly upward.
In a radio interview with Chuck Jaffe, MarketWatch senior columnist, Holmes noted that gold correlates to the price of oil 90% of the time -- meaning it moves with oil prices almost all the time -- and has an inverse relation to the dollar 70% of the time. With oil prices on the rise and the dollar weakening, it's a market condition that bodes well for gold, especially because gold is "not at astronomical levels yet, when compared to other commodities. ... There's a lot more room."
Holmes also noted that he's more concerned with the market entering a "big deflationary cycle" than he is about Federal Reserve rate cuts sparking inflation, noting that "inflation is easy to stop."
Holmes recommended that investors looking for a plan to follow through the current whipsaw conditions should take a long-term approach that divides a portfolio as follows: 25% in international investments, 25% in resources, 25% in domestic stocks, and 25% in high-income and dividend-paying stocks.
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