As
these words are being, written gold is consolidating at the $1,640 an
ounce level after peaking at $1,900 in August of 2011. In addition, gold
has fallen below both its 50 day and 200 day moving averages. For the
army of technical analysis who now seem to rule Wall Street it is game
over for gold. There is no shortage of financial commentators across the
Wall Street spectrum that is prepared to write gold's obituary but is
the bull market in gold really finished?
The
most curious thing about all of this is the Wall Street consensus
opinion. An opinion, which has not deviated for decades. The consensus
opinion has always been that gold is a barbarous relic and therefore a
bad investment. After all that is what Keynes said and how could Keynes,
be wrong. Then Wall Street was mugged by gold. For 12 straight years,
gold out performed the S&P 500.
However,
the real story is far worse than that. In August of 1971 president
Nixon took the United States off the gold standard. At that, time gold
was selling for $35.00 an ounce. In the 41 years since 1971, the price
of gold has risen 54.28 times to its all time high of 1900 and 46.85
times to its current high. At that time the Dow Jones industrial was
then selling at about 890. The Dow peaked in October of 2007 at 14,164
for a rise of 15.91 times. Its current price is 13,038 a rise of 14.64
times.
Wall
Street needed a new story. The new story was that gold was in a bubble
and therefore should not be bought. Overnight it went from being a
barbarous relic that was a bad investment to being a bubble without ever
being a buy.
The
first thing you have to know about gold is its incredible rarity. The
authoritative consensus is that from the beginning of recorded history
to the present between 150,000 metric tons and 165,000 metric tons has
been produced. At its most optimistic, that translates to about.76 troy
ounces per human being. In other words if you gave every human being on
earth a rather substantial gold ring you would wipe out the world's gold
supply.
For
an asset to be in a bubble more is required than a historically high
price. The key requirement is that the asset must be owned by people,
speculators really who will be panicked into dumping the asset by
falling prices creating a death spiral.
When
you look at the gold market what hits you in the head is how little
gold the speculators own. The following is the recent World Gold Council
estimates.
What do the speculators own?
Jewelry- 52%
Central banks -18%
Investment-16%
Industrial - 12%
Other- 2%
Jewelry
at 52% dominates the gold market. What do you think the chances are
that if the price of gold falls another 25% or 50% hysterical husbands
are going to rip off their wives wedding rings and rush off to the
pawnshop to sell it?
Central
banks the second largest holders of gold at 18% are no longer dumping
gold. They are now buyers of gold. They no longer trust the currencies
of other nations. It is about time that they snapped out of their
stupidity.
The
industrial users of gold are not going to freak-out and stop using gold
if the price falls. They will buy more. No body uses gold for
industrial purposes if there is an alternative.
The
only part of the market that is up for grabs is the 16% that is used
for investment purposes, which is in the form of gold coins and bars.
This is the only area where speculation matters.
Now
let us look at who buys gold. One of the favorite proofs of the "gold
is in a bubble crowd" is the constant ads for gold that we see in the
newspapers. Of course, it never dawns on them that there is something
very strange about these ads. At least 95% of all the ads are offers to
buy gold and almost never offers to sell gold. Just check out these ads
for yourself. If gold were in a bubble then the thrust of these ads
would be to dump gold on stupid, unsuspecting investors. Yet, the
reverse is happening. That brings up the crucial point of just where is
this gold going. It is going to Asia.
The
three titans of annual global consumption in 2011 were India with a
whopping 745 metric tons. Followed by China, which consumed 428 metric
tons, and a lame United States consuming 128 metric tons. On a global
basis Asia has become a giant vortex sucking in gold from every corner
of the globe. Gold is flowing from where it is disdained to where it is
treasured. The more prosperous Asia becomes the more gold it buys.
According to the World Gold Council in 2011 consumer gold demand rose
25% in China and a staggering 38% in India.
What
do you think the chances are that the Wall Street consensus that gold
is in a bubble will panic the Asians into dumping their gold?
In
June of 2012, the Pan Asia Gold exchange will open in China and unlike
the ugly shenanigans in the United States, each contract will have
actual title to gold. They will be the first future gold contracts ever
to be fully backed by gold. There is a very real possibility that the
days when the price of gold was set in New York and London are ending.
After all, if the gold is in Asia should not the price of gold be set in
Asia?
It
is long past time for the American people to wake up. The days when the
dollar was as good as gold are over with. The barbarous relic is not
gold. It is the paper currencies of the world that are being debased at a
frightening rate. There is not a single sound currency left on the face
of the earth.
Every
once in a while the New York Times reprints its front page of 100 years
ago. It is always an interesting read. The most interesting part of the
reprint is the price of the New York Times 100 years ago. It was one
cent. Today it is $2.50. What does that tell you?
Fred Carach is the author of Forty Years A Speculator. His blog is: http://www.fortyyearsaspeculator.blogspot.com
Investing in gold bullion can be a good idea. Gold is a metal that retains its luster and does not tend to corrode over time. As I am sure you are aware its price has been rising quickly over the last 10 years and many people want to get in on the action.
But before investing you need to know what you are going to invest in, where you are going to invest it and most importantly fully understand all the risks involved. Gold will never become worthless, but is price may decline from the current high levels.
You should study and gather data about investing gold before you take a step forward. Investing in gold is not as easy as you think, it's complicated and scary for it is much more expensive than many other investments and if you make a wrong move you'll lose a big amount of money.
Here are some other tips about gold bullion as an investment:
- First you have to know your budget, then you decide what gold you want to buy. You have to consider the size of the gold position you want to take. You have to bear in mind that buying a small amount of gold may not be beneficial for you since you pay a much larger premium compared to bigger amounts.
- When you have your limits and budgets set you should also consider the storage, and transport of the gold if investing in physical gold assets. Other options include gold ETFs, gold brokers and gold exchanges.
- Buying a gold coin may also have additional value for coin collectors, for the price will depend on the rarity, the age and the condition of the coin.
- You should invest only what you can afford, even though gold is costly you can buy small coins whose prices fit your budget. Alternatively, you can get into many gold ETFs or exchanges with as little as $100.
- Also before purchasing a gold you should look around and compare prices for the gold price differs from each dealer. In doing this you might find the best price that will suit your wallet.
- Also since you know that you are buying a precious metal such as gold you should also prepare where to store your gold investment if buying physical gold. For example a safety deposit box is one way of keeping your investment safe from the thief's eyes. ETFs and other exchanges don't have this problem.
- Then last you must have patience, because the price of gold does not go up or down in straight lines. Have an idea about where you are willing to sell and stick to it.
- When you go into investing in something you must know and learn all the details first. If you are interested in investing in gold then you should learn, study about gold and how to invest in it.
No comments:
Post a Comment