Gold: Slam-Dunk Sell or Trade of the Year?
Demand for gold bullion remains high. Each day there’s a new piece of information that continues to attest to this phenomenon. With this, I remain bullish on the yellow shiny metal. But one thing should be noted: I am not saying the bottom has been placed in, but that all the indicators are suggesting a bottom may be in the making.
From a fundamental point of view, the basic factors of price—supply and demand—suggest gold prices may be going higher (which I have said before). Demand is increasing.
We are seeing massive demand for gold bullion from countries like Turkey. According to the Istanbul Gold Exchange, Turkey imported 302.3 tons of gold bullion in 2013. This was more than double what it imported in 2012 and the highest amount since 1995. (Source: Larkin, N., “Turkey’s Silver Imports Surge to Most Since 1999 as Prices Slide,” Bloomberg, January 2, 2014.)
Pakistan is seeing massive imports of gold bullion into the country. As a result, the Economic Coordination Committee (ECC) of the Cabinet has imposed a ban of 30 days on gold bullion imports to Pakistan. This is the second time the country has taken such a step. The first time it imposed a ban on gold bullion imports was in July of 2013. (Source: “ECC imposes 30-day ban on gold import,” The Nation, January 21, 2014.)
The demand for gold bullion from India and China has shown great resilience in the past year, and I wouldn’t be surprised to see it continue. With the Chinese New Year fast approaching—a time when gold bullion is purchased by consumers as gift and good luck—we should soon have a better idea of how it will look for the precious metal this year.
From a technical point of view, we are seeing a continuous battle in gold prices, but they fail to break below the lows made last year. Every time gold prices reach those levels, we see a rush of buyers come in and take it higher, as you can see in the following chart of daily gold prices (pay close attention to the circled areas).
Chart courtesy of www.StockCharts.com
As all of this happens, I continue to see value in gold bullion producers. Some of the well-known, low-cost producers are selling for extremely low prices. They are being punished for all the wrong reasons, in my opinion. For investors who want to profit from this, you may want to consider an exchange-traded fund (ETF) like Market Vectors Gold Miners ETF (NYSEArca/GDX).
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