Category Archives: Buying Gold / Selling Gold

Is Gold entering a Bull Market?

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The world is a scary place these days. Fortunes can be made or lost in the blink of an eye, but through it all gold still remains a safe-haven investment. This month Gold broke through the $1,300 mark. There are a number of reasons that could set and sustain gold’s bull run.

Looking at all the geopolitical issues today, very few seem like they will be resolved anytime soon. North Korea has not been resolved, Israel is as volatile as ever, ISIS is not relenting, America won’t fix it’s dysfunctions and President Donald Trump won’t become anyone but himself. The stock market will also continue to look like a bubble unless someone decides to burst it.

The latest data from the Commodity Futures Trading Commission shows that money managers have taken a bullish stance with gold. Gold has been bullish for almost 11 months. This could be due to the following:

– Global interest rates staying negative.
– High broad equity valuations and complacency.
– The U.S. Dollar enters the bear market.
– The surge in demand for gold from countries like China

The most pertinent of these four is the broad valuations and market complacency. Let’s look at the valuations by starting with the S&P500.

It is currently overvalued because of this belief that Trump’s intention to cut corporate tax will drive future earnings in a positive direction. However, slashing corporate tax may have a bad effect on a company’s valuations.

We can debate how much of a safe haven gold is luckily, there is a well documented history of gold’s performance over the years. Between 1961 and July 2017, the gold price returns were positive, especially when inflation went up and stock market returns were in negative numbers. Indications show that we can expect gold to be strong against a weak dollar.

Complacency has affected a lot of market analysts and other qualified financial commentators. A lot of people expect the gold market to be sky high given the state of affairs in the world. Take into account, Brexit, Trump trade tariffs, the Iran deal, climate change, etc.

The best time to buy insurance, in this case gold being insurance against economic depression, is when the risk event isn’t the imminent threat at the forefront of investors’ minds. Gold is currently an under owned, underappreciated commodity which could turn out to be the best insurance to buy into right now.

According to JP Morgan’s money managers hold the view that gold could reach peaks of $1,400 by the end of the year. Gold’s fluctuations over and under $1,300 is an expected reaction as the market has to self-correct before it can begin to climb again. Banks like JP Morgan and many money managers believe that gold has entered a bull market.

If you have been sitting on the sidelines waiting to buy gold, then this could be lowest that gold will be for a while. We may be headed higher, but how long it will take and what will trigger that surge past the $1,300 threshold no one really knows. The time to buy gold is now!

 

Sources:

http://www.schroders.com/en/insights/economics/market-complacency-could-bolster-case-for-gold/

https://www.cnbc.com/2016/05/10/gold-has-entered-a-new-bull-market-jpmorgan.html

The Volcker Rule and its Effects on the Precious Metal Industry

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Before moving on into the topic of how the Volcker rule affects the precious metal industry, it is crucial that the Volcker rule itself be understood first. The Volcker rule is basically a reformation act that restricts the banks in the United States from taking high risk investments, especially high risk investments that do not benefit the customers of the bank. In view of the major scandals involving banks using people’s money to make short term gains that saw profit flow into the banks but not to the customers, but when things go wrong, the customers bear the burden of the loss.

In other words banks are prohibited from investing in short term or long term hedge funds, speculative markets that are highly risky and it also prevents banks from investing in the precious metals industry (gold bullion / silver bullion). Banks are currently actually looking for loopholes in the legislation rather than comply to it, but according to the legislators the loopholes do not exist. How this would affect the precious metal industry is multi tiered, as some analyst say that banks are the biggest buyers and sellers in the precious metal commodity trade industry and that they are the main ‘market forces’ applied through hedge fund managers and their absence would create a huge void in demand and drive prices down. On the other hand there are those who believe that the absence of these speculative strong forces would provide stability to the prices of gold as most of the trading done by these market forces are for short term gains and in retrospect most of the gold bought by them are never held fopr more than a few days.

Looking into the average investor who looks towards the shiny yellow metal as a safe haven to secure wealth, the absence of these speculative forces will actually bring about the true essence of the gold value and allow the average investor to sleep peacefully knowing that there are no hedge fund managers trying to manipulate the gold market prices. Many have applauded this move, especially the savers, as many have seen what has happened in recent years to big financial institutions that were financially ruined and in the process ruined many other lives of individuals who had trusted these financial institutions to keep their life saving safe.

The reformation brought about by the Volcker rule is expected to bring confidence back into the precious metal industry as smaller investors will no longer have to contend with big players who use other people’s money to fill their coffers. Nevertheless, prior to this there have been numerous other ‘so called’ rules that were supposedly supposed to protect the small people, however in light of what transpired during the global financial meltdown and other similar situations, how long this rule lasts before it is overwhelmed or manipulated by the powers that be would not be long, and those who want to place themselves within the safe zone amidst a financial crisis would typically be the ‘Average Joe’ with a fistful of gold.

Bullion Treasure Chest

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It is no secret that the precious metals industry is indeed capital intensive and the reason for it is not only because precious metals are rare, but there is also the business of constructing mines and building production facilities in the middle of nowhere and these initiatives takes a lot of capital. However, this does not mean that investing in bullion is a non profitable initiative as a matter of fact the only reason any individual should invest in gold is to protect themselves from economic conditions that are uncertain. It is imperative for anybody who is planning on investing in gold bullion to understand this.

It is also important for would be investors to understand the factors that play a big role towards how gold prices are influenced in the market. These influences may range from variables such as fabricator demand, expected inflation as well as central bank demand which has a tremendous effect on the demand curve that push supply lines that in turn creates upward stress on the price ceiling or resistance levels of the market. Thus if we look at the structure of how gold bullion prices work it becomes more obvious that gold is heavily pegged to the patterns or the whims and fancies of the supply-and-demand patterns. Another aspect of the industry from a ‘production perspective’ is the fact that when the prices of the precious metal is low production is low due to the fact the mining companies would not be able to make profits when gold prices are low and most resort to keeping the stock of until prices are more feasible for release and of course in contrast high prices result in high production. Nevertheless it is market forces that determine price the prices of gold, silver and other precious metal bullion. This simply means that controlling costs is vital towards maintaining the financial health of mining companies when prices are low.

Other formats of bullion trading would include commodity ETFs or Exchange traded funds which is available for gold, silver and platinum. ETFs are instruments that are typically convenient for purchasing gold or selling gold and are easily liquidated with a push of a button. However, ETFs does not necessarily mean you will get the gold at the end of the transaction as it is a promise of gold delivery OR a sum of money that is equivalent to that of the gold you hold on paper. Other formats of gold related investment instruments include Common Stocks and Mutual Funds which are basically shares of precious metals mining companies and unless you have a good definition of how mining stocks values are arrived as it would be much safer to use the services of fund managers who have a proven track record. If you do not have sufficient funds for engaging fund managers, then the best option is to buy small gold bars from a reputable dealer systematically and slowly. The smaller the gold bar denominations you buy, the better it is for your future liquidation purposes.