Daily Gains Letter

gold bullion


Two More Reasons to Be Bullish on Gold

By for Daily Gains Letter | Mar 27, 2014

Bullish on GoldEarlier in the year, gold bullion prices were going higher, and we heard the skeptics say, “They will decline. Don’t buy the precious metal; it’s useless.” They turned out to be very wrong. Now, gold bullion prices are seeing a minute pullback. With this, we are once again hearing the same thing: ditch gold and buy something else has become the mantra.

Sadly, those who say don’t buy the precious metal are too focused on the short-term fluctuations and are completely forgetting the long-term picture.

I am bullish on the yellow metal. My reasons are very simple. We see demand for gold bullion increasing—it will come from the central banks and individuals and it will eventually cause disruption in the supply.

Those who are saying gold bullion is useless so don’t buy it are the same cynics who said buyers will eventually run out. Instead, we continue to see an increasing number of buyers.

Consider this: Iraq’s central bank bought 36 metric tons of gold bullion in March. This was the biggest purchase by the country in three years. The gold bullion was worth $1.5 billion. (Source: Salman, R. and Harvey, J., “Iraq’s central bank bought 36 T of gold in March,” Reuters, March 25, 2014.)

Certainly, the purchase made by the central bank of Iraq isn’t huge, but it shows that the demand for gold bullion by central banks is still present. It is also very interesting to note that the reason the gold bullion was purchased was due to the bank’s attempt to stabilize the country’s currency, the dinar.

Going back a little further, in 2013, central banks … Read More


Should You Be Prepared for a Bullish Run in Gold Bullion?

By for Daily Gains Letter | Mar 26, 2014

Bullish Run in Gold BullionAfter 12 years, gold bullion’s glorious bull run ended with a thud in 2013, retracing 30% and locking in the biggest annual decline since 1981. Many speculate that gold bullion prices melted in 2013 as investors tried to figure out when the Federal Reserve was going to be cutting its generous $85.0-billion monthly bond purchases.

Investors lean toward gold bullion and other precious metals as a hedge against both a weak U.S. dollar and inflation. A tapering of the Federal Reserve’s monetary policy suggests that the U.S. economy is getting stronger. While there was no real sign of sustained economic strength in 2013, just the idea that the Federal Reserve would have to start tapering at some point was enough to send gold bullion prices lower.

That coupled with a strong—but misguided—run on the S&P 500 also helped push gold bullion prices lower. I say “misguided” because quarter after quarter, more and more companies on the S&P 500 revised their earnings guidance lower. At the same time, companies masked their weak earnings and revenues with cost-cutting measures and near-record-high share repurchase programs.

That came to a crushing halt at the beginning of 2014, when the Bureau of Labor Statistics reported abysmal January payroll figures. Instead of adding the forecasted 196,000 jobs—the U.S. economy added just 74,000.

Weak January payroll data coupled with political tension in Ukraine helped send gold bullion prices higher. Between the beginning of January and the middle of March, gold bullion prices rebounded, climbing 15% year-to-date to around $1,390 per ounce.

The bullish run in gold bullion didn’t stop the bears from warning investors to avoid the … Read More


The Chart That Will Make You Bullish on Gold

By for Daily Gains Letter | Mar 19, 2014

Bullish on GoldSince the beginning of the year, gold bullion has gained a significant amount of attention. The precious metal has increased about 14% in value and has become one of the best-performing asset classes. Key stock indices, on the other hand, are down.

With this rise in gold bullion prices, we see an increasing amount of pessimism. In 2013, we heard the metal was a slam-dunk sale. Now, the warnings are a little tamer, but we are told $1,200-an-ounce gold bullion is very possible. The mining companies that have increased in value will see a pullback.

Before going into further detail, please look at the chart of daily gold bullion prices below.

Gold - Spot Price (EOD) Chart

Chart courtesy of www.StockCharts.com

As I have written about in these pages before, I am bullish on gold mainly because of one fundamental reason: the demand for the yellow metal is much higher and constraints to its supply are increasing.

But this isn’t all. When I look at the charts, my bullish convictions for higher gold bullion prices become stronger.

Ask any technical analyst; they will tell you to treat the trend as your friend, follow it until it breaks. Since late 2012, gold bullion prices were trending in a downtrend (black line on the chart above). This changed. In June of 2013, we saw the precious metal’s prices decline below $1,200, and then in December, they tested those levels again. As this happened, there was one phenomenon no one talked about: there was no follow-through—meaning gold bullion prices never declined below their lows. Instead, there was a formation of the chart pattern called the “double bottom.” In February … Read More


What’s Happening in the Copper Market Should Alarm You…

By for Daily Gains Letter | Mar 14, 2014

Plunge in Copper Is a Big Warning SignThere is something going on right now in the copper market that should alarm you. Over the past week, the price of copper has plunged, recently hitting a four-year low.

Why should this matter?

Most investors and analysts are placing bets that economic growth is about to re-accelerate globally. Never before has the world been so interlinked, so we must pay attention to what is occurring internationally.

Copper is an important part of the potential for economic growth, not just because it is used in building and construction, but because it is also a major factor in the Chinese lending market, which is now showing severe strain leading to a potential debt crisis.

Remember, the last financial emergency was led by a debt crisis brought on by a housing bubble that eventually popped. High levels of debt creating a bubble are always dangerous, as the hangover is quite severe.

How does this impact economic growth for us here in America?

To begin with, we all know that the U.S. is doing relatively better than other parts of the world, but we are not exactly running at full speed. Any slowdown in economic growth—especially with a country as large as China—that is brought on by a debt crisis in that nation could severely impact our economy.

In China, the lending market is quite different than in North America, and firms have to rely on what’s called shadow banking.

Many firms in China have trouble borrowing, so they buy copper and use it as collateral. We are not talking about a small amount of money, as a shadow banking system in China … Read More


Three Reasons to Buy Gold Now

By for Daily Gains Letter | Mar 12, 2014

Buy Gold NowWhen it comes to gold bullion prices, despite their mere 10% climb since the beginning of 2012, I wouldn’t be at all surprised to see gold bullion prices increase even further. With this, companies producing or looking for the precious metal are still presenting a great buying opportunity.

Let me explain…

We see demand for gold bullion continues to increase, and at the same time, supply constraints are slowly starting to show. This is something I have been talking about for some time now and at the very core, it is the perfect recipe for higher gold bullion prices ahead.

In 2013, we learned that the Indian government and the central banks have been working together to curb the demand for gold bullion in that country. This was a concern to many because India was the biggest consumer of the precious metal at that time. As a result of this, emotions took over, and we saw massive selling. A little-known fact that never made the mainstream: though the official demand for gold bullion declined, smuggling the precious metal into the country became the next big thing.

According to the World Gold Council (WGC), smuggled gold bullion in the country amounted to 150–200 tonnes in 2013. The WGC also predicts that if the restrictions imposed by India’s government remain in place, then it wouldn’t be a surprise to see an increase in the amount of gold bullion smuggled into the country. (Source: “UPDATE 1-Gold smuggling in India likely to rise if curbs stay-WGC,” Reuters, February 18, 2014.)

But this is just the tip of the iceberg.

We see uncertainty in the … Read More


How Global Debt of More Than $100 Trillion Is Threatening Your Portfolio

By for Daily Gains Letter | Mar 12, 2014

Global DebtThere is a recent statistic that is quite shocking: the total amount of debt globally is now over $100 trillion, a jump of 40% over the last six years.

According to the Bank for International Settlements, which is run by 60 central banks, since the financial crisis, the majority of the $100 trillion in debt has been issued by governments and nonfinancial corporations. (Source: “March 2014 quarterly review,” Bank for International Settlements web site, March 9, 2014.)

You would think that with such a huge amount being issued, it would drive interest rates higher amid a debt crisis. But as we all know, the exact opposite has occurred with interest rates still near historic lows.

What’s really shocking is that governments and corporations have borrowed and pumped out a massive amount of money, yet the global economy is barely moving. We know why corporations have issued the debt; with interest rates low, it does make sense to take advantage of the environment, borrow money, and fund share buybacks and dividends.

Of course, it makes one ask the question—if high levels of debt fueled the previous debt crisis, can we fundamentally solve this problem with even more debt? Not likely.

The real question for investors who are allocating capital to these markets is: are they suitable for long-term investors, or should we consider if a debt crisis is possible?

With the situation in Ukraine deteriorating along with other parts of the world, such as Venezuela, this is creating a flight to the perceived quality of the bond market in the developed world. However, long-term, I’m not so sure.

With the U.S. … Read More


What I Learned at the World’s Biggest Mining & Exploration Convention

By for Daily Gains Letter | Mar 6, 2014

World’s Biggest Mining & Exploration ConventionThis week, I went to one of the world’s biggest mining and exploration conventions, which was hosted by the Prospectors and Developers Association of Canada (PDAC) and was held in Toronto. There were hundreds of gold mining and exploration companies showcasing their projects and making their case for how they could be the next big investment.

Saying the very least, it was an interesting experience.

From time to time, I go to conventions like the one I went to a couple days ago. I go to gauge the sentiment of those who are very close to the industry, to see where gold bullion prices might go next.

This week, at the convention, I found that gold exploration and production firms, analysts, and even those who sell mining equipment are skeptical about where gold bullion prices are heading next.

Let me explain…

Over the day at the convention, I spoke to many different companies that produce or explore gold bullion. The majority of them said something along the lines of, “The markets are tough these days,” or “Funding is difficult to get… We are cutting our exploration budget and not going ahead with further expansion.”

Analysts who look at companies involved in the gold bullion sectors weren’t very optimistic, either. Remember when gold bullion prices were reaching their highs? At that time, you would hear calls for the precious metal prices to go higher than $3,000 or even $5,000 an ounce.

This isn’t the case anymore. The negativity is intense. Analysts said something along the lines of, “At the very core, exploration companies and producers won’t increase in value unless gold … Read More


Making This “Difficult” Trade Now Could Set You Well Ahead of the Crowd

By for Daily Gains Letter | Mar 5, 2014

investor sentimentOne of the most difficult things for an investor to do is look beyond the current environment. One of the biggest reasons that many investors underperform is because of their own human biases.

This is perfectly natural, as we tend to expect more of the same in terms of what has been recent history. In this way, investor sentiment becomes far too complacent.

Is there a way that you can take advantage when investor sentiment is causing the markets to be mispriced?

Absolutely, but you first need to have an understanding that this is indeed occurring. A perfect example over the past couple of years has been with gold bullion. During the run-up in gold bullion prices, investor sentiment became overly bullish as some people assumed that the price would continue rising forever.

Obviously, that’s completely unrealistic, but this led to a position where investor sentiment was leaning too far toward the bullish camp. Conversely, gold bullion in the second half of 2013 was the recipient of massive levels of negative investor sentiment.

In that case, people looked at the recent price trends for gold bullion and assumed that the sell-off would continue—again an unrealistic expectation, but a natural human reaction. There’s an old saying in the market that the right trade is the tough trade. When the market in gold bullion was selling off and very few people were talking about it, this negative investor sentiment was an excellent opportunity to begin accumulating, but it’s not easy to be contrary to the crowd.

The future is unknown, and a perfect example is the current situation occurring in Ukraine. With … Read More


Five Ways to Preserve Your Wealth as Key Stock Indices Decline

By for Daily Gains Letter | Feb 28, 2014

Key Stock IndicesThe key stock indices continue to make new highs. Each day, there’s someone on the TV saying how we are going higher. Some are estimating key stock indices will do much better this year than last. No matter where you look, the opinion seems to be the same: buy stocks and your portfolio will do great. With all this happening, investors must remember one very important lesson that the stock market has taught us over and over again: a rising tide lifts all boats, but tides come and go.

Let me explain…

As key stock indices are going higher, investors’ portfolios may look great. Their return may be exuberant, but they shouldn’t forget that markets tend to move in waves. The conditions may look rosy now, but eventually, it all turns. Key stock indices are known to have corrections—minor or steep.

When the times are good on the key stock indices, such as now, long-term investors have to keep market corrections and sell-offs in mind.

Generally, when the key stock indices turn, investors turn towards government bonds. This is mainly because they move in the opposite direction of the stock market. Investors can protect their assets when key stock indices decline by going heavyweight on exchange-traded funds (ETFs), like PIMCO Total Return ETF (NYSEArca/BOND)—this ETF, like many others, invests in bonds with different maturities. Investors may even consider ETFs like iShares TIPS Bond (NYSEArca/TIP), which invests in the inflation-protected bonds issued by the U.S. Treasury.

Another way investors can protect their portfolio in the case that key stock indices sell off is through gold bullion. The yellow shiny metal has … Read More


Why I’m Even More Bullish on Gold Bullion Now

By for Daily Gains Letter | Feb 26, 2014

Gold Bullion NowSince the beginning of the year, one asset class has shone when compared to the stock market. I am talking about gold bullion. The yellow shiny metal’s prices are up more than 10%. The stock market, on the other hand, hasn’t performed as well. For example, year-to-date, the S&P 500 is only up by little more than one percent. With this said, I believe gold bullion can surprise investors even more this year.

Let me explain why…

Looking from a technical analysis point of view, there are a few interesting developments that suggest gold bullion prices are heading higher. Remember the first rule of technical analysis: the trend is your friend, until it’s broken. With this in mind, please look at the chart below.

Gold - Spot Price Chart

Chart courtesy of www.StockCharts.com

The downtrend that gold bullion prices were following since late 2012 has now been broken (black line). At the same time, we see prices breaking above the 200-day moving average for the first time since early 2013 and sustaining above the 50-day moving average. This suggests sentiment is turning bullish. In addition to this, we see indicators of momentum, like the moving average convergence/divergence (MACD), suggest bulls are in control (as indicated by the black line below the chart).

The fundamentals of gold bullion prices are suggesting investors are going to reap rewards as well. The demand continues to increase and the supply remains subdued. This is the perfect recipe for higher prices.

In 2013, we saw central banks buy gold bullion; they have been net buyers of gold bullion since 2009. It will not be a surprise to see them buy … Read More


Two Reasons to Consider Gold Investments Right Now

By for Daily Gains Letter | Feb 12, 2014

Gold Investments“Why would someone be bullish on gold right now? Stocks have the momentum. Let me warn: you will be better off buying stocks than buying gold bullion.” These were the “wise” words of my good old friend Mr. Speculator, when I met him over the weekend.

Not too long ago, he was afraid about what would happen to his stock position. Now, his opinion has changed. Mr. Speculator thinks key stock indices will hit new highs and gold bullion—which provides safety against the backdrop of a weak economy—will go down further. He said, “It will be a bad year for gold investors.”

Mr. Speculator may be right about the key stock indices. The momentum on the stock market is significantly noticeable. We see buyers come in and buy after every decline. This can continue, but you have to keep in mind that the fundamentals are becoming weak. This can be troublesome and could create a massive sell-off very quickly.

On gold, however, I completely disagree.

I have been bullish on gold bullion for some time, and my main argument has to do with the demand and supply of the precious metal. I see demand for gold bullion increasing, while the supply side is being threatened due to low prices.

We are seeing China become the biggest consumer of gold bullion. It was India before, but the government and the central bank of the country are working very hard to curb the demand for the yellow shiny metal. According to the China Gold Association, in 2013, the total precious metal consumption in the country increased by 41% to 1,176.4 tonnes. This … Read More


Gold and U.S. Bonds the New Great Trade?

By for Daily Gains Letter | Feb 10, 2014

Gold and U.S. BondsThere’s uncertainty on the stock market. Troubles are coming from the emerging markets, and they are causing investors to panic and sell their stocks. We see they are scared. But as this is happening, there’s a trade in the making, and those investors who have raised some cash (as I’ve been suggesting my readers do) and are looking to park their money somewhere safer than stocks can profit from this opportunity.

The trade I’m talking about is the trade that’s happening in U.S. bonds and gold bullion—some call this phenomenon a “flight to safety.” I call it a potential opportunity.

We know bonds and gold bullion are one of those asset classes where investors rush to when the risks on the stock market increase. This is something we are seeing now, and it could continue for some time.

In the following chart, I have plotted the prices of U.S. bonds (red line), gold bullion (black line), and the S&P 500 (green line). Take a look at the circled area, which shows the movement out of stocks.

30 Years US Treasury Bond Price Chart

Chart courtesy of www.StockCharts.com

Since the beginning of the year, U.S. bonds and gold bullion prices have increased in value, while the stocks have fallen. We have seen this relationship before as well. A prime example of this is the stock market sell-off in 2009; we saw investors rush to gold bullion and bonds then in hopes of finding safety.

It’s not too late for investors to consider taking advantage of this shift by looking at exchange-traded funds (ETFs), like iShares 20+ Year Treasury Bond (NYSEArca/TLT). Through this ETF, investors can invest in long-term … Read More


Could Gold Surprise Investors in 2014?

By for Daily Gains Letter | Jan 31, 2014

Could Gold Surprise Investors in 2014?The demand for gold bullion is increasing. Each day there’s more evidence that suggests this phenomenon will continue. We see consumers buying gold bullion across the global economy. As a result, mints are working in overdrive mode to meet this demand and gold storage facilities are looking to add more vaults.

The Brinks Company (NYSE/BCO), UBS AG (NYSE/UBS), and Deutsche Bank Aktiengesellschaft (NYSE/DB) are opening new vaults in Asia. What’s their reasoning for taking this step? The demand for gold, especially from China, has increased.

Regarding vaults, the general manager of Brink’s in Singapore, Baskaran Narayanan, said, “We need additional capacity, so we have to take further space.” He added, “There’s a surge in demand for precious metals in Asia, and one can see the focus and movement from the west to the east.” (Source: Larkin, N., et al., “Gold Flows East as Bars Recast for Chinese Defying Slump,” Bloomberg, January 28, 2014.)

Mints cannot meet the demand. The Austrian Mint, for example, was forced to hire more employees and add more time to the daily shifts worked. This wasn’t enough. Even while operating 24 hours a day to meet the gold bullion demand, the mint is failing. (Source: Roy, D., “Gold Mint Runs Overtime in Race to Meet World Coin Demand,” Bloomberg, January 27, 2014.)

But there’s something else happening that could cause a further increase in the demand for gold bullion, and that’s a currency crisis in the emerging markets. Currencies in countries like Turkey, Russia, South Africa, and Argentina have seen massive declines. The central banks look worried. The central banks of Turkey and South Africa have … Read More


Why Gold Looks Good to Me in 2014

By for Daily Gains Letter | Jan 29, 2014

Gold Looks Good to Me in 2014Just the other day, I was talking to a friend of mine who seemed extremely cheerful. I asked why, and he said that his investments have performed well over the past few months and he saw no reasons to worry.

This is a common problem with investor sentiment; people tend to become complacent and only look to the recent past as an indication of what tomorrow will bring.

This is quite dangerous. Investor sentiment is often wrong and can be used as a contrary indicator, buying when others are dumping their stocks and taking profits when others are blissfully unaware of the changing landscape around them.

Americans need to be careful of becoming too complacent in their bullish investor sentiment, because the U.S. is not isolated from the rest of the world.

When the real estate bust and financial crash occurred here in America several years ago, the effects spread to many nations around the world, including the emerging markets.

With the Federal Reserve pushing the gas pedal on money printing here in the U.S., it has created a shock absorber to some extent, temporarily keeping global pressures at bay, especially in relation to the emerging markets.

However, investors do need to be aware that there is much uncertainty around the world. Investor sentiment for global institutions has been aware of these potential issues and is now running for the exits.

Last week this began in Asia, as economic growth appears to be slowing and reports of a financial crisis in China are beginning to grow. With the Chinese shadow-banking sector showing signs of cracking, this is creating negative investor … Read More


Gold: Slam-Dunk Sell or Trade of the Year?

By for Daily Gains Letter | Jan 23, 2014

Gold: Slam-Dunk SellDemand 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 … Read More


How to Profit Big from Gold Mining Stocks Left for Dead

By for Daily Gains Letter | Jan 15, 2014

Gold Mining StocksLeft for dead: that’s what appears to be what most investors have done to gold mining stocks.

With the price of gold bullion down significantly in 2013, it appears many are simply ignoring all gold mining stocks, lumping them into one category and avoiding the group as a whole.

Personally, I love buying when things are on sale. I hate paying full price on anything, no matter if it is for a stock or clothes. When it comes to gold mining stocks, the market sentiment hasn’t been this bearish in years.

Market sentiment tends to oscillate, and for the long-term investor, one should be looking to buy when others are selling and looking to sell when others are buying.

Market Vectors Gold Miners Chart

Chart courtesy of www.StockCharts.com

The above chart shows the price of gold bullion (black line) on top of the price of gold mining stocks (red line) as exhibited through the exchange-traded fund (ETF) Market Vectors Gold Miners ETF (NYSEArca/GDX).

As you can tell from the chart, gold mining stocks are close to reaching lows not seen since the fall of 2008. While there are some gold mining stocks in financial difficulty due to their high cost of production, there are certainly some companies that are extremely attractive, considering how much bad news is priced into the market.

This is what you have to consider as an investor: is market sentiment too bullish, too bearish, or somewhere in between?

I believe that both gold bullion and gold mining stocks look attractive at this point because most of the bad news has already been priced into the market.

Because the price of gold … Read More


Update: My 2014 Gold Outlook

By for Daily Gains Letter | Jan 7, 2014

Gold OutlookIn 2013, gold prices saw the worst tumble in a few decades. This decline in prices caused many to panic, and the negativity towards the yellow metal increased significantly. As we begin 2014, this sentiment seems to be holding on. It’s not uncommon to hear analysts or investors say how gold bullion isn’t worth holding and that there are better opportunities.

However, I’ve been bullish on gold for some time, and I stand by my bullishness. The main reason for my take on the precious metal comes down to the most basic factors that determine price—supply and demand. I continue to see a declining supply and increasing demand. Keeping all else the same, this is the perfect recipe for higher prices ahead.

On the demand side, we are seeing buying from countries across the globe. This was something that was said to have slowed when the gold bullion prices were going down back in April of 2013 and then again in June of 2013.

Australia’s Perth Mint reported sales of gold bullion coins and bars increased by 41% in 2013 compared to a year ago. The Mint sold 754,635 ounces of gold bullion in 2013 compared to 533,333 ounces in 2012. (Source: Sedgman, P., “Perth Mint Gold Sales Surge 41% in 2013 on Worst Rout Since 1981,” Bloomberg, January 2, 2013.)

At the U.S. Mint, the increase in sales of gold bullion coins has been similar to that of Australia’s. The U.S. Mint, for the entire year of 2013, sold 856,500 ounces of gold bullion in American Eagle coins. This was 13% higher compared to the same period a year … Read More


A New Year’s Resolution in Gold Bullion?

By for Daily Gains Letter | Jan 7, 2014

Gold BullionDid gold make a New Year’s resolution? If it happened to set its sights on 2014 being better than 2013, then that might not be too hard to accomplish. For gold bugs, 2013 was abysmal. Gold bullion prices ended the year down about 28%—the biggest annual drop in more than 30 years.

Gold bullion prices experienced an unprecedented run-up after the tragic events of September 11, 2001 and soared higher in 2008 as the global economy teetered on the brink of a recession. Investors’ justifiable fears of economic turmoil and inflation sent them running to gold bullion and gold mining stocks to hedge against this economic uncertainty. Between September 2001 and September 2011, gold prices soared more than 560%.

But since then, gold prices have lost their lustre. And in June of this year, the precious metal hit a three-year low of $1,179 an ounce after the Federal Reserve hinted it would begin to taper its generous $85.0-billion-per-month quantitative easing policy. Investors took this as a sign that the U.S. economy was on solid footing.

Gold bullion prices remained weak near the end of the year after the Federal Reserve announced on December 18 that it would begin to reduce its monthly bond buying program to $75.0 billion a month starting in January. Gold bullion ended the year at $1,202.

2013 will be remembered as the year when (misguided) economic optimism helped lift the Dow Jones Industrial Average by 26%, the S&P 500 by almost 30%, and the NASDAQ by 34%. In 2013, that same optimism also shaved off half of the value of gold mining stocks.

But it could … Read More


Gold Market to See Supply Shock in 2014?

By for Daily Gains Letter | Dec 20, 2013

201213_DL_zulfiqarAs the negativity towards gold bullion increases, and the influx of easy money is in jeopardy, one key question is being asked: how low can the prices of the yellow shiny metal really go? Remember the decline in gold bullion prices in late June? When the prices fell below $1,200 an ounce then, we heard calls for a bottom. Now we are closing in on that level again.

As I have said before, predicting tops and bottoms is really difficult; sometimes, tops and bottoms may already be in place, and we just don’t know it until later. At this point, we don’t know if the level reached in late June was really the bottom.

For now, the chart of gold bullion shows nothing but negativity. You can see it for yourself below:

Gold-Spot Price Chart

Chart courtesy of www.StockCharts.com

With all this in mind, I remain bullish on gold bullion prices ahead. I don’t know where the bottom will be placed, but one basic principle of economics keeps me bullish: supply and demand.

As I have said before, the most basic factor that drives prices is supply and demand. If the supply remains the same and demand declines, you can expect the price of gold bullion, or any other commodity or stock for that matter, to go down. On the other hand, if the demand remains the same or increases but the supply declines, the prices head higher.

The lower the gold bullion prices go, the bigger the supply shock is going to be. Consider this: if the price of gold bullion is $1,200 an ounce and the cost to extract one ounce … Read More


Two Factors Suggest Problems in Gold Market Will Get Bigger?

By for Daily Gains Letter | Dec 6, 2013

Gold Market Will GetGold bullion prices are taking a big hit. The precious metal continues to slide lower, and sits at the lowest level since July; negativity towards it is exuberant. There’s a significant amount of noise that says gold bullion prices will go much lower, and those who are against it can be found saying that it’s not worth the investment—those who are bullish on the precious metal are ridiculed.

As I have said before, I continue to be bullish on gold bullion prices going forward. It is certainly difficult to take this stance, but the odds are stacking higher with this notion; time will be the better judge.

One of the factors that affect prices is the supply. At the end of the day, gold bullion prices—or the price of any other commodity or stock for that matter—are very dependent on the supply. If there’s an abundance of the commodity, you’ll see prices go lower; if the supply is dismal, one can expect prices to go higher. This is Economics 101.

I see constraints to the supply of gold bullion going forward, with demand remaining robust.

One way to assess the future supply of gold bullion is to look at the exploration costs of gold mining companies. At their very core, increasing or decreasing exploration costs tell us if there will be more production. As it stands, we see companies reducing their exploration costs, meaning they are not as active in looking for more gold bullion.

Consider Yamana Gold Inc. (NYSE/AUY). In the first nine months of this year, the exploration and evaluation costs at this company totaled $83.9 million. In … Read More


Why It “Won’t Be Different” This Time Around

By for Daily Gains Letter | Nov 26, 2013

U.S. Dollar Trade ContinueBuy the U.S. dollar, because it’s going to gain strength going forward, or so say the mainstream. The reasoning behind this investment strategy is very simple: the central banks of major economic hubs are working to devalue their currencies. As a result, there will be a rush to buy the U.S. dollar—it’s proven to be safe in the past. Just look at Japan, for example; it continues to be in favor of printing, which is why you should sell the Japanese yen. The European Central Bank (ECB) has hinted it might go ahead with quantitative easing—sell the euro. Others, like Australia, have already lowered their interest rates, and while they haven’t started printing yet, but say they are open to it—sell the Australian dollar.

In the short run, these investment strategies may be viable. In fact, since late October, we have been seeing the U.S. dollar gain strength compared to other major currencies. Please look at the chart below of the U.S. dollar index.

US Dollar Index Chart

Chart courtesy of www.StockCharts.com

I question if this strategy of buying the U.S. dollar is going to be profitable in the long run. Those who are looking at the fundamentals of the U.S. dollar from a long-term perceptive will agree with me that they are looking very bleak.

First, the printing continues. We heard from the Federal Reserve that it will continue to print U.S. dollars in exchange for government bonds and mortgage-backed securities (MBS). Sadly, what many don’t realize is that even if the central bank says it will taper, it simply means it will be printing, just at a slower pace. What this printing … Read More


Losing Faith in Gold? Read This Before You Sell

By for Daily Gains Letter | Nov 25, 2013

Faith in Gold“The sky is falling, sell;” “It’s useless, run away;” “There’s going to be deflation, so it won’t serve any purpose to your portfolio”—these are a few of the ways gold bullion is being described these days. The yellow metal is facing scrutiny, and those looking for it are gasping for air.

Looking at all this negativity, should you lose trust in gold and sell, like the mainstream says?

The scrutiny against gold bullion is significant, but I remain bullish on the metal in the long run. As it stands, I don’t see demand declining, and as the prices remain suppressed, I expect the supply to decrease.

When gold bullion prices slid lower, we started to hear that the buyers would run for the exits, but we still don’t see that happening; as a matter of fact, more consumers are jumping in to buy the precious metal.

The nations that are known as the biggest consumers of gold bullion are still buying. According to the World Gold Council, in the third quarter of 2013, gold bullion jewelry demand in China was 164 tonnes, an increase of 29% from the same period in 2012. In India, the demand for gold bullion remains robust; for the first nine months of this year, the demand for gold bullion was higher than the previous year by 19%, despite the government and central bank working together to curb the demand. (Source: “Gold continues its journey from West to East as buoyant consumer markets balance investment outflows,” World Gold Council web site, November 14, 2013.)

“Consistent with the first two quarters of 2013, the global gold market … Read More


Three Bullish Reasons to Renew Your Trust in Gold

By for Daily Gains Letter | Nov 15, 2013

Trust in GoldGold has gained a significant amount of negative attention lately, being called a “slam-dunk sell” not too long ago. While the bears have their reasons, I continue to be bullish on the shiny yellow metal for a few reasons of my own.

First of all, central banks around the world are continuously printing or using easy monetary policies to spur growth in their respective countries—these policies are rigorous and extraordinary, to say the least. For example, the central bank of Australia has lowered its benchmark interest rates by more than 40% since the beginning of 2012. The cash rate in the country stood at 4.25% in early 2012, and now it sits at 2.5%. (Source: “Cash Rate Target: Interest Rate Changes,” Reserve Bank of Australia web site, last accessed November 12, 2013.)

Similarly, not too long ago, we heard a surprising announcement from the European Central Bank: it cut interest rates to their lowest level after the eurozone’s economic health didn’t show signs of improvement.

On the printing front, the Federal Reserve continues to be at the forefront. The central bank is still printing $85.0 billion a month and buying U.S. bonds and mortgage-backed securities. Note that we hear gold bullion is going down in value these days because the Federal Reserve will be tapering quantitative easing. Sadly, they forget that tapering still means more printing, just at a slower pace.

Secondly, the demand for gold bullion continues to increase. We have seen mints across the global economy sell a record amount of gold bullion coins, consumers rush to buy the precious metal, and nations that are thought to be … Read More


Time to Rethink Your Gold Investments?

By for Daily Gains Letter | Nov 11, 2013

Rethink Your Gold InvestmentsIs it time to rethink your gold investments? This question is being asked by those who have held on to their investments as the prices of the precious metal have come down significantly. It wasn’t too long ago when gold bullion prices soared beyond $1,900 an ounce; this year, they are facing scrutiny. Gold bullion prices witnessed plunges in April and June, and now sit close to $1,300—down more than 31% from their peak.

This decline in gold bullion prices has caused concern, and I completely understand why. For example, gold miners’ share prices have collapsed—both senior miners and exploration companies.

With this in mind; I certainly think it’s time to rethink the gold investments that investors hold in their portfolio.

Before going into any details, let me make this very clear: I continue to be bullish on gold bullion prices ahead. I see the most basic principles of economics, supply and demand, are at play; gold bullion is seeing increased buying worldwide, while supply becomes anemic every day that the prices remain stressed.

The reason for rethinking gold investments is due to the basic portfolio management principle that things can change very quickly and investors have to change with them. Investors have to keep in mind that the deeper the losses get, the harder it is to break even. For example, if an investment has come down 50%, it will have to go up 100% just to break even.

Let’s face it: some gold producers have come down significantly and exchange-traded funds (ETFs), which provide leverage to gold bullion prices, have tumbled downward, too.

If investors hold gold producers … Read More


Why Investors Shouldn’t Lose Interest in Gold Producers

By for Daily Gains Letter | Oct 29, 2013

Interest in Gold ProducersNo one is talking about gold producers these days. The reason behind this is both simple and apparent: gold bullion prices have declined. As a result, gold producers are facing pressures. Pessimism towards gold producers is very high; some are even calling them the worst investment to hold in your portfolio.

Just look at the chart below of the Market Vectors Gold Miners ETF (NYSEArca/GDX), an exchange-traded fund (ETF) that tracks the performance of well-known gold producers. This ETF has lost more than half of its value since 2012, with a majority of the losses coming in 2013. So why would an investor want to buy this ETF? After all, no one wants to catch a falling knife.

Well, the drop in gold bullion prices has caused a significant amount of damage to the gold producers. That said, I wouldn’t call them the worst investment—though I am slightly pessimistic about their movement in the short term—and continue to be bullish in the long run.

Market Vectors Gold Miners Chart

Chart courtesy of www.Stockcharts.com

You see, in the short run, companies producing gold bullion or looking for the metal have to make a lot of changes. These changes range from deciding on what kind of reserves in the ground they should exploit to how much they should produce. Gold producers, in the short term, have to make decisions on what to do with their expensive operations, how to cut costs, and how to build up cash positions.

While we are already seeing this happen, I believe more is needed.

The reason I remain bullish on gold producers is because I am bullish on the shiny yellow … Read More


Why You Should Remain Bullish on Gold

By for Daily Gains Letter | Oct 18, 2013

Bullish on GoldIn 2008, when the key stock indices started to plummet after Lehman Brothers fell, there was uncertainty across the board. There was too much noise, and the direction of key stock indices was very unpredictable. The bottom was not placed until March of 2009.

Fast-forwarding to today, we have one market that’s seeing something similar: gold. Gold bullion isn’t liked by many these days, to say the least; it’s not uncommon to hear something along the lines of how the store of value doesn’t hold value itself anymore. The gold bears love what’s happening in the gold bullion market, and will take any chance they get to talk against it.

That said, I remain bullish on the shiny yellow metal.

My argument remains the same, and it’s very simple: the demand for gold bullion is increasing, and with prices remaining suppressed, the supply will decline. The basic rules of economics are at play here.

Where’s the demand coming from?

In April, when the price of gold bullion dropped on speculation that the easy money will be out of the system and the Federal Reserve will start to normalize its monetary policy—we’re still waiting to see it happen—there was speculation that gold bullion buyers would eventually run out. It was believed they would stop buying the precious metal once the prices remained in stress for some time.

They were wrong; we actually have been seeing buyers still in the market.

One of the buyers of gold bullion is the central banks, and I closely watch what they do. This is because they are big buyers and can affect the price of … Read More


Why I Remain Bullish on Gold

By for Daily Gains Letter | Oct 3, 2013

Bullish on GoldI am bullish on gold bullion. My convictions are very simple: central banks in the global economy are going to buy more of it. Their perspective towards the yellow shiny metal seems to be changing. As a result, the demand will increase, and with prices remaining suppressed, the supply will decline.

What we have seen is that central banks around the global economy have become buyers of gold bullion. In the recent past, we have seen central banks from countries like Russia, Turkey, and Kazakhstan add the yellow precious metal to their reserves. In the second quarter of this year, central banks throughout the global economy added 71 tonnes of gold bullion to their reserves. (Source: “Consumer demand for gold up 53% in Q2 2013 led by strong growth in China and India,” World Gold Council web site, August 15, 2013.)

Those who already hold gold bullion in their reserves are holding onto it. For example, there were rumors about the Italian central bank selling its gold bullion for the sake of economic growth in the country. It turns out that the bank is staying firm on its take on the precious metal.

At the London Bullion Market Association’s annual conference, the director general of the Italian central bank, Salvatore Rossi, said that “Not only does it have the vital characteristic of allowing diversification, in particular when financial markets are highly integrated, in addition it is unique among assets in that it is not issued by any government or central bank, so its value cannot be influenced by political decisions or by the solvency of any institution.” (Source: Harvey, J. … Read More


Supply and Demand Metrics Suggest a Bright Future for Gold Ahead

By for Daily Gains Letter | Sep 6, 2013

Bright Future for GoldThe case for higher gold bullion prices continues to become stronger each day. As I have been harping on about in these pages, there’s significant evidence that the demand for the yellow metal is increasing and supply is facing hardships.

Let’s look at the demand side of gold bullion first. It is robust, to say the very least.

I have reported here before that we see strong demand for gold bullion from the Far East. The consumers in the two biggest gold bullion-consuming nations, India and China, continue to buy more. This is nothing new.

What’s really surprising to note is that as the prices have come down, India and China weren’t the only places that saw demand for gold bullion increase. Other countries in the global economy also saw a spike in demand.

Consider the Royal Canadian Mint (RCM). In the second quarter of this year (ended June 29), the Mint recorded revenues of more than $1.0 billion. This is the first time in history that the RCM has achieved sales of this magnitude.

“This unprecedented result was due to the soaring demand for the Mint’s world-renowned Gold and Silver Maple Leaf bullion coins and sustained popularity of our expertly handcrafted numismatic products,” said Ian E. Bennett, president and CEO of the RCM. (Source: “Royal Canadian Mint achieves $1 billion in revenue in single quarter for first time in its history,” Royal Canadian Mint web site, August 27, 2013.)

At the RCM, the sales of gold bullion in coins in the second quarter increased 144% compared to the same period a year ago, reaching 403,000 ounces.

Moving towards the … Read More


Gold Keeps Rising: Time to Drop Your Bearish View on the Yellow Metal?

By for Daily Gains Letter | Aug 29, 2013

290813_DL_zulfiqarI will be the first one to agree that it’s very difficult, if not impossible, to price gold bullion. Unlike stocks or bonds, it doesn’t provide investors with income or necessarily have an interest rate. Sadly, just for this reason, the yellow metal gets a lot of scrutiny. We saw what happened to gold prices not too long ago: they were slammed on the notion that the precious metal doesn’t have any use in a portfolio anymore, and it seemed as if no one knew where the precious metal would find support.

Now, a couple of months after the sell-off, the price of gold bullion is up about 20% from its lows around the $1,175 area.

Looking at all this, one must wonder: what’s really next for gold bullion? Is the bull market that began in 2001 over, or do gold bullion prices still have some room to grow?

Gold -Spot Price Chart

Chart courtesy of www.StockCharts.com

When I look at gold bullion prices, I tend to focus on the supply and demand side.

Looking at the demand side of gold bullion, it seems robust. As the prices were falling, there was a significant amount of concern that the consumers will eventually diminish in numbers.

We did not see this phenomenon occur. Consumers stayed; as a matter of fact, they rushed to buy more. Keep in mind that earlier in the second quarter of this year, gold bullion prices had a significant downturn. By the logic presented, buyers should have diminished by the end of the quarter.

Consider this: the Word Gold Council (WGC) reported that the demand for gold bullion in China during … Read More


Where the Real Opportunity in the Gold Market Is

By for Daily Gains Letter | Aug 16, 2013

Real Opportunity in the Gold MarketThe direction the price of gold bullion is headed is heavily debated these days. Those who are bearish continue to say the shiny yellow metal has no space in an investor’s portfolio. They argue that the price action we have seen in the gold bullion market since the beginning of the year, especially the sell-offs in April and June, were just a few minor sell-off episodes. We are headed much lower than $1,000.

When it comes to the price of gold bullion going forward, I have to distance myself from the bears. I cannot predict where gold prices will bottom or where will they top, but what I see is certainly worth noting. Both the fundamentals and the technicals of gold bullion are showing the presence of bullish sentiment.

At the very basic level, the demand for gold bullion is increasing, and it is very evident. Take sales of gold bullion coins at the U.S. Mint, for example. For the first seven months of 2013, the demand was higher by 82% compared to the same period a year ago. The U.S. Mint sold 679,500 gold bullion coins in total, compared to only 374,000 in the previous year. (Source: “Bullion Sales/Mintage Figures,” U.S. Mint, last accessed August 14, 2013.)

Demand for the precious metal in China is robust and continues to increase. Consider this: according to the Chinese Gold Association, in 2012, 460 tonnes of gold bullion were consumed in the Chinese economy; this year, the number has increased to 706.36 tonnes. If the demand remains, China may very well become the biggest consumer of gold bullion in the world (it’s … Read More


Why Negativity Toward Gold Bullion Isn’t Affecting Physical Demand

By for Daily Gains Letter | Jul 30, 2013

gold bullion pricesGold bullion prices fell below $1,200 an ounce by the end of June; now, they are trading above $1,300, down from well above $1,600 in January. Looking at this price action in the gold bullion market, investors are asking if the recent surge after making lows is just a rally based on short covering—investors who were short-closing their positions—or if it’s due to fundamental reasons.

I stand in the camp that believes the rise in gold bullion prices we are seeing is due to fundamental reasons. That said, the sell-off we witnessed in the precious metal prices could take some time to recover.

In spite of the negativity and the notion that gold bullion isn’t useful in one’s portfolio, the physical demand continues to increase. Keep in mind that those who buy gold in physical form tend to have a long-term focus, compared to those in the paper market, who are there to speculate.

We are seeing demand increase here in the U.S. economy. For example, look at the demand for gold bullion coins sold at the U.S. Mint; Richard Peterson, acting director of the U.S. Mint, described it as “unprecedented.” (Source: Mason, J., “U.S. bullion coin demand still at ‘unprecedented’ levels: Mint,” Reuters, last accessed July 29, 2013.) But in the Far East, the demand is much higher.

Consider this: UBS AG (NYSE/UBS), one of the biggest gold-dealing banks in the global economy and based in Switzerland, announced that it will start to store gold bullion in Asia—specifically Singapore—for the first time.

What are the reasons for this move? “Notwithstanding the drop in gold prices, we are still receiving … Read More


What You Absolutely Need to Know About Gold’s Future

By for Daily Gains Letter | Jul 11, 2013

Do Have Faith in Higher Gold PricesI have faith that gold prices are just about to go higher. While the current negativity towards gold continues to increase, it goes against the most basic of economic principles—supply and demand.

Since gold prices have begun their recent slump, some in the mainstream media have even said that the bull market in the metal that began in 2002 is over. They are saying gold bullion has no space in their portfolio and that it isn’t really a store of wealth anymore.

But the fundamental reasons for a rise in the value of gold bullion are actually increasing. The demand is going up and supply appears to be slowing—the very recipe for a price increase.

The demand for the metal remains very strong. According to data from the Hong Kong Census and Statistics Department, imports of gold bullion to mainland China from Hong Kong increased to 108.781 tonnes in May, compared to 80.101 tonnes in April—a 36% increase in just one month. (Source: Ananthalakshmi, A., “UPDATE 1–China’s net gold imports from Hong Kong jump in May,” Reuters, July 5, 2013.)

And there are major concerns on the supply side. The cost to take gold out of the ground is getting higher than the metal’s current price, making mining gold a losing proposition. Consider that Barrick Gold Corporation (NYSE/ABX, TSX/ABX), one of the biggest senior gold bullion miners, is halting its production at one of its biggest mines, the Pascua Lama mine in Chile, due to its costs increasing from $5.0 billion to $8.5 billion. And Barrick isn’t the only one facing a problem in rising production costs; there are others … Read More


How Low Can Gold Prices Actually Go?

By for Daily Gains Letter | Jun 25, 2013

Why Gold Bears May Be Wrong on Their PredictionsGold prices fell into turmoil after the Federal Reserve announced it might be slowing the pace of its quantitative easing. Prices tumbled and broke below the support level, which was formed after gold’s previous decline in mid-April to around $1,350.

Since the beginning of the year, gold prices have been in a continuous decline and have plummeted from trading at about $1,650 an ounce to below $1,300—a drop of more than 21%.

With this slump in gold prices came an increased amount of noise. Some are saying gold has lost its “haven” status, while others are saying we actually may see deflation ahead, so buying gold isn’t the brightest move for investors. Their estimates may vary, but it’s clear that they are extremely bearish on the yellow metal.You can see this decline in the stock chart below:

Gold - Spot Price Chart

Chart courtesy of www.StockCharts.com

With all the negativity around the precious metal, everyone is wondering: how low can gold prices actually go?

It actually turns out that the supply and demand side of gold suggests that the bears might be wrong in their projections.

While the gold prices have taken a hit, the demand remains exuberant. The World Gold Council (WGC) reported that in the first quarter of 2013, 963 tonnes of gold bullion was sold. In that period, central banks bought more than 100 tonnes for seven consecutive quarters, and buyers in India and China, the biggest gold-consuming countries, were resilient and bought even more. (Source: “Global demand for gold Jewellery up 12% in Q1 2013 driven by significant increases in India and China,” World Gold Council web site, May 16, 2013, … Read More


Why a Eurozone Break-Up Could Happen; What It Means for Your Investments

By for Daily Gains Letter | Jun 7, 2013

Eurozone Break-Up Could Happen; What It Means for Your InvestmentsThe eurozone crisis has been haunting the global economy for a while.

Countries in the common currency region are deteriorating very quickly. Look at the Spanish economy, for example: in the first quarter of 2013, it contracted 0.5% after continuing its slide from the last quarter of 2012, when it declined 0.8%. The Spanish economy, the fourth-biggest in the eurozone, has been contracting for seven successive quarters. (Source: “Austerity chokes off Spanish economy,” Deutsche Welle, May 30, 2013.)

Other troubled countries in the eurozone, such as Greece, Portugal, and Italy, continue to take a toll on the region, as well. In April, unemployment in the eurozone reached another record-high, registering at 12.2%, compared to 12.1% in March; 19.3 million individuals were jobless in the euro area. (Source: “Unemployment statistics,” Eurostat web site, last accessed June 5, 2013.)

With the economic slowdown gaining a stronger grip on the region and with major economic hubs like Germany and France begging for growth, there are movements erupting across the eurozone demanding the abolishment of the economic bloc.

Germany has witnessed a rise of a new party called the Alternative for Germany party. According to a recently conducted poll, seven percent of Germans said they would “certainly” vote for this anti-euro party, while 17% said they would “probably” vote for them. (Source: Geiger, F., “New Anti-Euro Party May Enter German Parliament – Poll,” Wall Street Journal, April 6, 2013.)

But it’s not just Germany; other countries in the eurozone have the same kind of movement spreading. For example, there are political parties in Portugal that want out of the eurozone and two parties with … Read More


One Strategy to Profit from Gold Bullion Prices, No Capital Required

By for Daily Gains Letter | May 22, 2013

One Strategy to Profit from Gold Bullion Prices, No Capital RequiredGold bullion prices have taken a beating; since the beginning of the year, they have declined about 20%, and the pessimism towards the precious metal continues to increase. Investors are fleeing from gold bullion and selling at a very high pace. As EPFR Global (a firm specializing in tracking inflows and outflows of money) notes, money managers are withdrawing their investments from funds that invest in the precious metal at the highest rate since 2000—withdrawals have amounted to $20.8 billion since the beginning of the year. (Source: Campbell, E., “Gold Bears Pull $20.8 Billion as BlackRock Says Buy: Commodities,” Bloomberg, May 13, 2013.)

The reason behind the price decline is that there is no use for gold bullion anymore. The shiny metal is used in times of uncertainty as a safe haven, and now economic conditions are much better. To say the very least, uncertainty isn’t there as it was back when the financial crisis struck the U.S. economy—depression was becoming a very likely scenario, with staggering unemployment, failing banks, and the financial crisis on the cusp of collapse.

On top off all this, the inflation isn’t picking up as it was expected. The Bureau of Labor Statistics reported the Producer Price Index (PPI)—an early indicator of inflation—has been posting a negative performance for two months. It registered a decline of 0.6% in March and 0.7% in April. (Source: “Databases, Tables & Calculators by Subject,” U.S. Bureau of Labor Statistics web site, last accessed May 17, 2013.) Remember: gold is considered a good hedge against inflation.

With this, investors are asking how low can the metal prices really go, and … Read More


Bulls vs. Bears: What’s the Best Strategy for Gold?

By for Daily Gains Letter | May 14, 2013

Bulls vs. Bears: What’s the Best Strategy for GoldGold bullion has attracted a lot of attention lately from both the bull side and the bear side. The main reasons: the continuous decline in the prices since the yellow metal reached its highs in 2011, and the recent sell-off, which caused more pain to the investors. Will gold go down further? Or is it headed much higher?

The Bull’s Argument

The bulls argue that the sell-off in gold bullion was nothing but panic selling—that the decline was in the futures market or the paper market, but the demand by consumers and central banks remains the same. They argue fundamentals haven’t changed.

As the gold prices plummeted in April, retail investors rushed to buy gold bullion. Consider this: the U.S. Mint reported that in April, it sold 209,000 ounces of gold bullion in coins. (Source: U.S. Mint web site, last accessed May 10, 2013.) In April of 2012, when gold bullion prices were soaring higher, the U.S. Mint only sold 108,000 ounces of gold bullion in coins. (Source: Ibid.)

Similarly, central banks have been continuous buyers of gold bullion. As the bigger central banks around the world are busy printing more money out of thin air—look at the U.S. Federal Reserve and the Bank of Japan—others are looking at gold bullion as an alternative to holding currency in their reserves. Why? Because printing more money devalues the currency.

As a matter of fact, central banks have actually become net buyers of gold bullion, and in 2012; they bought the largest amount in many years.

The Bear’s Argument

The gold bears say that the yellow metal is a good investment when … Read More


One Simple Way to Protect Yourself from the Fear of Taking a Loss

By for Daily Gains Letter | Apr 29, 2013

One Simple Way to Protect Yourself from the Fear of Taking a LossGold bullion has lost almost 15% since the beginning of 2013. While gold’s ceiling may be limitless, its descent isn’t. Like any investment, it can, theoretically, only go to zero. Sadly, some investors are so afraid of losing money that they’ll hold onto a plummeting equity at any cost.

If you followed the herd and purchased gold at its peak in early September 2011, you would have had to fork out roughly $1,923 per ounce. Fast-forward a couple of years, and on April 16, gold opened at $1,355. Those investors who bought gold at its peak have since seen their holdings plunge 30% in value.

Those holding onto bullion in hopes that it will rebound may have a while to wait. Gold is currently trading at lows not seen since early 2011; for investors looking to recoup that 30% loss, gold prices will have to climb 42%. That’s a pretty sharp increase.

Facebook, Inc. (NASDAQ/FB) is still trying to recover from its botched initial public offering (IPO), and a lot of investors have been holding on for the ride. In May of 2012, the company opened trading near $40.00 per share; in September, it was hovering near $18.00, for a four-month loss of 55%.

For investors to simply break even, they need to wait until Facebook’s share price climbs 122%. While Facebook’s share price has rebounded to $26.00 per share, it still needs to climb an additional 53% to match its IPO price.

By turning your back on a losing stock and selling your position, you can free up cash and invest it elsewhere. But the fear of taking a … Read More


Buying Miners: A Good Idea When Gold Prices Fall?

By for Daily Gains Letter | Apr 19, 2013

190413_DL_zulfiqarGold is in a bear market territory. The price of the shiny yellow metal has fallen almost 30% since the highs it made above $1,900 an ounce in April of 2011. Look at the chart below—it seems gold bullion prices have fallen off a cliff.

dl_04192013_graph1Stock chart courtesy of www.StockCharts.com

As there has been a significant decline in gold bullion prices, analysts are projecting many estimates, on both the bear side and the bull side. Some are calling the decline a great buying opportunity, while others are saying the bubble is bursting. Price forecasts have gone haywire, as well—I have heard estimates as low as $800.00 an ounce to $1,600 and higher.

With this said, is it a good time to buy gold? Should you buy physical gold or gold miners (after all, they are selling at deep discounts)?

When it comes to investing in gold bullion, some may suggest investing in gold miners to get the greatest bang for your buck. Their argument: if a gold miner has the ability to extract the metal from the ground at a cost below the spot price, and the price goes higher, investors can earn higher returns compared to just holding gold in solid form (bars, coins, etc.).

This is certainly true; profits are much higher when gold prices are on the rise. But as gold prices fall, the profitability of gold miners gets hurt, and the losses can occur in multiples as well. Consider the chart of the Market Vectors Gold Miners ETF (NYSEArca/GDX) below. This exchange-traded fund (ETF) holds some of the well-known miners and lets investors take advantage of … Read More


Save Yourself from Declining Gold Prices

By for Daily Gains Letter | Mar 13, 2013

130313_DL_zulfiqarGold bullion prices have seen a slight decline since the beginning of the year—the yellow metal was trading well above $1,600 an ounce in early January, and now, gold is trading close to $1,550 an ounce.

The reason behind the sell-off in gold bullion prices is mainly due to the optimism surrounding the expected improvement in the global economy and central banks’ expected move to tighten their monetary policies—raising interest rates and halting quantitative easing activities.

On top of all this, the stock chart for gold bullion, featured below, is showing a significant presence of bearish sentiment. As gold bullion prices declined, the 200-day moving average (MA) crossed above the 50-day MA—a bearish signal called a “death cross.” This is also considered a sell signal by technical analysts.

dl_031313-image003Chart courtesy of www.StockCharts.com

As gold prices slid downward, investors fled from gold miners—selling them at a much faster rate than they had bought them. Since the beginning of the year, when gold bullion prices have decreased by roughly six percent, the gold miners have done much worse. Just consider the Market Vectors Gold Miners (NYSE/GDX) exchange-traded fund (ETF), for example. It has plummeted by about 20% in the same period.

130313_DL_zulfiqarThe reason? When gold bullion prices decline, the profitability of gold miners declines with them. Think of it this way: if a gold miner is able to produce one ounce of gold bullion for a cost of $600.00 and the market price is $1,600 an ounce, then its profit would be $1,000. On the other hand, if its costs remain the same, and the price declines to $1,400 an ounce, the … Read More