Upward Bias Toward Gold

$1,888 ...... How's that for a nice round number? It's hard to believe but bullion is now only 6% away from the $2,000/oz target price that I had in mind when I started my gold mining portfolio blog back on Feb. 5, 2009. At that time bullion traded 51% lower at $914. Strangely many gold & silver mining stocks are well below their 3 year highs and the TSX global Gold Index and other professionally managed mutual funds are just now re approaching their highs achieved late last year when bullion was trading $500/oz (26%) less than today. My portfolio is up 8% from its' Nov. 2010 previous high level and up 215% from Feb. 2009. This performance can be primarily attributed to my large position in New Gold warrants.

So is it time to cash in and leave the party before the lively music stops? I would say no for the following reasons:
1) Real interest rates are sharply below reasonable levels (inflation plus 2-3%).
2) The Fed has just promised to keep rates very low for yet another 2 years.
3) European sovereign debt issues are very likely to deteriorate much further.
4) American economic recovery is painfully slow and unemployment very high.
5) U.S. political will is without direction. Debt ceiling/entitlement debates intensify.
6) Growth in developing countries appears to remain positive at reasonable levels.
7) Inflation is not evident, in fact rumors of deflation linger.
8) SPDR Gold Trust inventories are increasing quite modestly with no evidence of rampant
speculation. Inventories fell during the Feb., 2011, Soros sell off by about 100+
tonnes and were replaced a month ago only to be sold off again. Inventories remain 40-50
tonnes below previous highs.

As Fidelity's Andrew Marchese, Head of Canadian Equities and Darren Lekkerkerker, Portfolio Manager said recently, "we are bullish on select gold mining companies more so than bullion because historically, well managed companies, will outperform the base metal by a large margin. There is an upward bias for gold that we can't see that changing anytime soon".

Knowing when to get out is trickier than deciding to take on an initial position. If you can stomach the risk, I'd hold onto gold stocks for a while longer at least until some of the eight points noted above show signs of significant change.