Between September 2012 and July 2013, gold wasn’t so much on a roller coaster ride as a steep descent, losing almost 35% of its value. During the first half of 2013, it fell almost 30%, hitting an intra-day low on June 28 of $1,179.40.
But it’s been a different story since then. Increased demand for physical gold and lower supply have helped the price of gold jump almost 15%, soaring past its 50-day moving average and hitting a two-ish-month high near $1,370 an ounce. Over that same time period, gold miners have gone up 35%.
Basic economics pointed to a rebound in the price of gold. During the second quarter of 2013, consumer demand for physical gold surged 53%, while total supply slipped six percent. Naturally, one would expect the price of gold to increase, but it didn’t; the price fell 35%.
According to the World Gold Council “Gold Demand Trends” report, gold’s second-quarter descent was due to speculators selling paper gold, rather than a decline in demand for actual physical gold. (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.)
With some analysts predicting the price of gold will head higher, many investors are asking how high. In the near term, some expect gold purchases by the manufacturing trade to increase ahead of the holiday season and harvest festivals.
Economist and gold bug Eric Sprott thinks the price of gold will double from its June 28 bottom, touching $ 2,400 an ounce by next summer. The gold bull market is also expected … Read More
Gold has gained a significant amount of attention since the price plunged from trading just below $1,600 an ounce in mid-April to now hovering close to $1,400. It’s very common to hear someone in the financial media say how the yellow metal has no use in their portfolio and, most importantly, that the prices won’t go any higher. Some have even called the price plunge a sign of the bubble bursting.
My take on the issue is that while there’s no doubt that the prices have gone down from their highs, investors who are in the world of investing for the long term need to think on a bigger scale. If declining prices are the sole reason for investors to say gold is useless for their portfolio, then I beg to ask what the 2008–2009 stock market sell-off suggested; that investors shouldn’t hold stocks? Just look at the chart below, which shows gold prices sliding lower:
Chart courtesy of www.StockCharts.com
The truth is that gold can be healthy for a portfolio over a long period of time. Remember that just like stocks, gold prices fluctuate.
Now, can the plunge in gold prices that started in April continue?
In spite of the decline in gold prices, the fundamentals for the precious metal remain strong. The demand is still there; as a matter of fact, it seems to be skyrocketing.
Consider the behavior of central banks as the prices have fallen.
“Overall, gold prices coming down is giving an opportunity to various central banks across the world to improve on their holdings,” said Ajith Nivard Cabraal, governor of the Central Bank of … Read More
Gold 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.
Stock 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
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