Gold Prices Cheap: Analyst

NEW YORK ( TheStreet) -- Gold prices hover at $1,200. Believe it or not, top analysts say it's cheap -- here's how they say to invest in gold.

Some analysts believe gold is an asset bubble waiting to burst, even China's central bank weighed in with that idea. But James Turk, author and founder of GoldMoney, argues that gold will hit $8,000 by 2015. Turk says to ignore the price and just pick one day every month and buy the precious metal. Sometimes investors will get gold at a lower price and sometimes they will pay up, but, over time, Turk argues that they will accumulate the precious metal at a good average cost. I asked Turk for the best way to buy.

James Turk: For most individuals, I just recommend buying physical gold. If you're a speculator or a professional trader, you might want to buy paper gold in one of its variable alternatives in order to try trading and make some additional money. But you know gold is a wealth preservation asset and that's why I say view it as a savings account. Instead of saving via currency, which is losing purchasing power ... hold gold instead. The other thing to keep in mind is when you're buying physical gold there are basically only two ways to do it. You buy it and you store it yourself or you buy it and you have someone store it for you, which is what we do in my company, Goldmoney. Both alternatives have advantages and disadvantages.

For example, if you buy it and store it yourself, you have it in hand but how much gold do you want to keep in the basement or buried in the backyard. Can you really get it insured? The other hand, if you're storing it with a company, you don't have it in hand, which some people actually prefer. I actually recommend a combination of both. But if you do store it with someone else, make sure they have the same type of governance procedures that we have in Goldmoney. The most important of which is independent third-party audits to prove that the gold you own really exists.

TheStreet: What about the benefits of physically backed ETFs?

I put it in this category of paper gold. You don't really own gold when you own an ETF. You own shares in a fund and you're paying 39 to 55 basis points per annum for the management fee on that gold. Whereas if you own physical gold and store it yourself, you don't have any management fee or any costs of that kind from year to year. And even with Goldmoney, the storage fee is one-third of what the management fee is in an ETF.

The other thing to keep in mind with the ETF is that it can be sold short. ... So don't view the ETF to be an alternative to physical gold. Just view it as a form of paper gold that might be more convenient for trading than a futures contract or an options contract. But it is still paper gold at the end of the day.

So what's gold for 2010?

For 2010, I don't think we're going back in three digits anymore. I think a three-digit gold price is history, just like a two-digit gold price. But we're not going to go straight to $2,000, which I think is a reasonable number in 2010, we might go sideways for awhile. On the other hand, if this scramble for physical metal becomes more pronounced or some other big hedge funds like Greenlight switch from paper gold to physical gold, which they announced back in July, you could see a spike in the gold price over the next couple of months.

Are there any other precious metals that might hold more value to gold?

Well, as bullish as I am on gold, over the long term I'm more bullish on silver. The problem with silver is that it's very, very volatile. The way you can view this volatility is calculating how many ounces of silver it takes to purchase one ounce of gold. So, for example last year 2008, at one moment in time ... it took 45 ounces of silver to purchase one ounce of gold. After the Lehman Brothers collapse, it took 84 ounces of silver to purchase one ounce of gold. So that volatility is not for everybody. But in the long run, the gold silver ratio is probably going to move back below 20. It's presently around 62 ... If you want to have some balance in your precious metal portfolio, have about two-thirds gold and maybe one-third silver or 70% gold and 30% silver. And over time, as the ratio declines back below 20, you'll end up with a 50-50 mix or perhaps even more silver than you have gold, which is I think probably a good way to control risks.

How high do you think silver is going to go?

Let's assume I'm correct in 2013 to 2015 gold is $8,000 an ounce and let's also assume I'm correct that the ratio between gold and silver goes to 20 ounces of silver to one ounce of gold, so you divide $8,000 by 20 and you get $400 per ounce of silver.

How did you get the 20 ounces of silver for one ounce of gold?

There's about 10 times more silver in the earth's crust than there is gold, so you would tend to think that if supply was the only thing that mattered, the ratio would be 10:1, but in fact, demand is an important part of the supply demand equation. And demand can change very rapidly because the demand, as explained in economic terms, is very elastic ... Historically the ratio's been around 15 to 16 ounces of silver to purchase one ounce of gold, and at the end of the last bull market, back in January 1980, it took 16 ounces of silver to purchase one ounce of gold. So I feel fairly comfortable in saying that we're going back below 20 ounces of silver to purchase one ounce of gold, given my overall bullish view on the precious metals and basically my bearish view on the U.S. dollar and other national currencies.

-- Written by Alix Steel in New York.

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