Gold prices: Europe's bailouts will provide boost

Gold prices should rise with bailouts of Greece, other euro nations, says analyst Jay Taylor. Gold prices edged above $1,500 an ounce as Greece neared approval of austerity plan.

Tamara Abdul Hadi/Reuters/File
A one kilo gold bar is displayed in a shop in Dubai's gold souk in this April 11, 2006 file photo. Gold prices rose above $1,500 an ounce June 28, 2011, as indebted Greece appeared likely to receive a new infusion of cash. Bailouts of Greece and other euro nations should boost gold prices and miners.

As Greece stands on the cusp of another bailout, one analyst says the fix is likely to be only temporary and he expects other Euro-zone countries to also require new rounds of funding. Those bailouts can come in one of two ways, via printing new money or taxing citizens of wealthy European nations.

Jay Taylor, President and CEO of Taylor Hard Money Advisors, believes that both these policy options will further weaken the euro and boost gold prices. In the first case, it would debase the currency and in the second, it would hurt the cohesion of the single currency zone.

"To the extent wealthy countries are taxed, it will serve to create only more political animosity even though it may pacify infantile behavior in Greece for a short time," Taylor wrote.

Gold prices rose above $1,500 an ounce in Europe on Tuesday and continue to edge higher as Greece’s parliament is set to approve an austerity plan on Wednesday.

Taylor also believes that the U.S. debt situation, which is currently under the radar for many investors, is as bad as any individual European debt crisis.

"To the extent policy makers attempt to inflate their way out of this mess, it is bullish for gold and silver," he added.

To bet on this trend, Taylor says investors should buy the stocks of junior gold miners and avoid the bigger names, whose stocks haven't done well this year. Shares of Newmont and Barrick Gold have fallen 14 percent and 17 percent respectively.

“I think the reason for that is the large guys have a hard time replacing the gold they're producing every year,” he said.

“[The big miners] are having to go out and pay huge amounts of money, a lot of money for the junior mining companies — the little guys that are able to find the gold.”

Taylor is bullish on the junior mining sector, particularly new producers that have a lot of upside exploration potential.

“They can grow organically and not have to go out and raise capital and dilute their shareholders base,” he said.

His top picks are Toronto Stock Exchange-listed San Gold, Timmins Gold, Sandstorm Gold, Alexco Resources and New York-listed Allied Nevada.

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