WSJ: Gold Keeps on Shining

July 20, 2011


·        July 19, 2011
·        By Francesca Freeman

Gold isn’t cheap. But that doesn’t mean people aren’t prepared to pay for it. Even at more than $1,600 a troy ounce, the precious metal is still proving its worth.

Last week, we asked whether an ascent to $1,600 a troy ounce would scare off all but the most fearless of speculators. As it turns out, the answer is ‘no.’

Yesterday, gold finally cracked that level, gliding through the key psychological barrier to a record high of $1,607.37/oz in the European spot market Monday, before continuing upwards and reaching a fresh record Tuesday, of $1,610.14/oz. Although prices have since paused to consolidate as buyers adjust to the higher prices, some longer-term interest in the metal appears to be sticking.

“At $1,600/oz, gold may be overextended to the upside, but the bullish trend seems to be intact,” said Mitsui analyst David Jollie. “There are a large number of people effectively buying gold as a currency, so it may be that an expensive absolute price is not necessarily a reason not to buy. While some people will see $1,600/oz as too expensive, others will see a rising price as a reason to buy today rather than tomorrow.”

This mindset is particularly evident in Europe, where spot gold has soared to fresh records in both euro and sterling terms as European buyers exchanged paper currency for the metal, viewed to be a safe bet amid persistent fears over the euro zone’s debt crisis.

Exchange-traded products are once again proving to be popular tools for investors to gain exposure to gold. According to Barclays Capital, the amount of gold held in ETPs globally is at a fresh record high of 2,170.9 metric tons.

This is despite the seasonal weakness in demand, according to Barclays Capital analyst Suki Cooper, with the Indian wedding season–traditionally a time of strong demand–not slated to start for another two months. “We expect prices to test fresh highs amid the current environment,” Ms. Cooper added.

And the relative illiquid trading volumes currently are another sign that the market isn’t getting overwhelmed by a herd-like mentality, as was seen with silver when dozens of investors piled in and pushed prices higher earlier this year.

“It is encouraging that the market is quite quiet,” said a senior industry participant. “This suggests that this isn’t just a temporary sensation. People are not walking around the office high-fiving.”


Friday Fun: 24-Karat Gold Vending Machine

March 25, 2011

Gold is showing up everywhere, even in vending machines? Yes right next to the gum and Red Bull machines are the bling bling gold vending machines. These are not the old fashion put in a quarter and get your gold-like Dick Tracey Decoder-ring. But pull out your American Express Platinum and get those 24K cuff links you needed for your next black tie event. To see more unusual vending machines check out the collection of 12 here – CNBC: 12 Alternative, Unusual Vending Machines

China, India & Russia are Consuming Gold at Record Levels

February 24, 2011

REUTERS/Krishnendu Halder (INDIA)

Gold demand is reoccurring theme on this blog but here is the surprising truth: the spike in gold demand is due to Love.  Not the love of gold, but love, true love, amour, kärlek, любовь, szerelem, you get the picture.

The ring you bought your sweetheart, the gold bracelet & gold earrings.   All of these have contributed to 2010 being one of the biggest years in gold for the last 50 years.

India, China, & Russia had the largest increases for demand of gold, about 54% of that increased demand went directly to jewelry. This demand is expected to increase as gold goes up in price. Many in these emerging markets are using jewelry as part of their physical ownership of gold. This is one way to take possession of gold, we recommend a diversified portfolio of bullion, certified better date & rare coins. Read more on the romantic side of gold: Jewelry Drives the Gold Love Trade

Indian investors scramble for gold

January 28, 2011

Gold demand in India has benefited from a combination of the country’s strong economic growth and its high rate of inflation.

Indian investors are raising their allocation to gold. Reports suggest gold medallion and bar sales were strong during 2010 in India, and in particular in the fourth quarter, relative to the same period of the previous year, up 30 per cent annually, to 250 tonnes. Consequently, the Reserve Bank of India has authorised seven more banks to import bullion. The World Gold Council (WGC) expects the impact of this measure to be visible during 2011.

Gold Imports to India Reach Record Levels in 2010

January 13, 2011

Gold imports by India, the biggest bullion consumer, likely reached a record last year driven by investment demand, according to the World Gold Council.

Purchases were about 800 metric tons, compared with 557 tons in 2009.

This is a very bullish sign because, historically, Indian demand for gold declined when the price of gold spiked. Gold set new records in 2010 and still Indian demand increased substantially.

This may be the reason for this statement:

“Our assessment is demand will continue to be strong,” he said. “Price is no longer a factor.”

Read more at Bloomberg/BusinessWeek:

The Daily Reckoning: Why Gold Still Has a Long Way to Run

January 6, 2011

The supply of paper currencies is infinite; the supply of gold is finite. This striking contrast provides an excellent reason to exchange the former for the latter.

The gold supply is limited…very limited. According to one estimate, all the above-ground gold in the world totals between 120,000 and 140,000 metric tons. Let’s split the difference and call it 130,000 metric tons (about 4.2 billion troy ounces). If you brought it all together and made it into a gigantic cube, it would measure about 19 meters along each side – about three meters short of the length of a tennis court.

Furthermore, about 20% to 25% of all the gold is stored in the world’s central banks as country reserves. So the total amount of gold in private hands is enough for just 14 grams for each living person – that’s less than half the quantity of a standard one-ounce coin like a US Gold Eagle or a South African Krugerrand.

At present, only about 2.25% of the world’s total wealth – or 4.5% of world’s financial wealth – is allocated to gold, including jewelry. But resurgent inflation could raise that percentage dramatically, while raising the gold price dramatically in the process.

To gain perspective, let’s examine a brief history of the gold price relative to US inflation. The gold price peaked in January 1980 at $850/oz. But this peak was very brief. Gold jumped 29% alone in the run towards $660. Probably a better reference point for the market top is the average price during 1980 as a whole. This was $615/oz. Since then, the gold price has increased only 125%.

Over the same timespan, however, the government’s most widely quoted inflation gauge, the Consumer Price Index (CPI), has increased 185%. Therefore, if the gold price had increased as much as the CPI, it would be selling for $1,753/oz today, not $1,390/oz. But the official inflation figures might not be the real story. Using alternative inflation figures calculated by, consumer prices have soared an astounding 789% since 1980, which means that the inflation-adjusted gold price would be $5,467/oz.

Interestingly, if we look at the market bottoms for gold – 1970 and 2001 – instead of the market tops, the ShadowStats data seem to provide a much more accurate inflation gauge than the CPI. For example, in January 1970 – before gold’s 10-year bull run – the price of gold was just $35/oz. Thirty-one years later – after soaring to more than $800 an ounce in 1980 – the big bear market in gold bottomed out at $256/oz. And the average price for 2001 was $271/oz.

Therefore, during this 31-year period – through gold’s full bull and bear market cycle – the gold price advanced 674%. Over the same timeframe, the ShadowStats inflation measure advanced a nearly identical 688%. By contrast, the CPI increased only 370% during this period. In other words, the cumulative CPI readings from 1970 to 2001 failed to account for all the inflation indicated by the rising gold price. The ShadowStats figures, on the other hand, were pretty much bang on target.

I’m staying conservative, and there’s nothing to suggest that just because using the ShadowStats inflation worked for the bear market lows it will work for the bull market highs. But if the ShadowStats figures above are a guide, then maybe they point to a price north of $5,000/oz for gold – or even $7,000 for a short time.

I’ve just thrown a lot of numbers at you. But the point is this: gold looks like it has plenty of upside. But let’s be really clear about one thing. I’m not making a hard prediction or setting a price target here. These figures just provide reference points. We also need to watch out for gold “going mainstream” – when references make their way into TV programs, when taxi drivers start talking to you about gold and when your mother calls to ask how to buy an ounce of the stuff.

I can easily see gold getting into the $2,000/oz to $3,000/oz range in the next few years – maybe higher. And there’s a very real possibility that we’ll have a short-term spike – a genuine investment bubble – that takes us into the $5,000/oz to $8,000/oz.

None of this is certain. And it most likely won’t happen smoothly. There could even be big corrections along the way – like between December 1974 and August 1976 when gold fell 47% before powering ahead again. But I hope I’ve shown you that there are good reasons to think that gold still has plenty of room on the upside.

Conclusion: If you own plenty of gold already, then hang on for the ride. If not, buy more on the dips.

New Jersey: Strong gold prices have shoppers investing in bling

December 16, 2010

The rise in gold prices in 2010 has stimulated demand for gold for a variety of uses. This may seem counterintuitive, but everyone loves a winner and people tend to buy something that is rising in value.

This is certainly true of gold and, in the case of the article linked below, it is true of gold jewelry. Rising demand for gold jewelry is nothing new and not particularly surprising, but gold jewelry is not the recommended form of gold investment.

Gold jewelry is beautiful and decorative, but it comes with a huge premium attached, as well as full retail mark-ups that have no place in the investment world. Nevertheless, the fact that many buyers see their jewelry purchases as a form of investment is testament to gold’s status as a store of value…

Strong gold prices have shoppers investing in bling

The run-up in gold prices is driving jewelry prices higher, and it also is driving more people to buy jewelry as an investment, giving jewelry stores a boost after a tough 2009.