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Archive for August, 2011

After Recent Records, How High Will the Price of Gold Climb?

August 23rd, 2011 No comments

On Thursday, August 18, gold hit yet another record high at $1,816 an ounce. This record price came on the same day the Dow Jones Industrial Average lost 3.86% and the NASDAQ lost 5.22%. It also followed 14 days of stock market and bond market turmoil around the world.

Adjusted for inflation, however, the real record would be closer to $2,300 an ounce, set after the 1970s oil crisis. So, in real terms, gold could increase in value significantly. In fact, JP Morgan announced it thought that gold prices may reach $2,500 an ounce by the end of this year, making now a potentially strong time to buy gold.

Why this staggering increase in gold prices? Right now, it’s one of very few safe harbours during this global economic storm. The major fall in bank stocks in the United States and in Europe signals the possibility of a double-dip recession. Just the threat of this will continue to see investors fleeing to gold.

The demand for gold remains extremely high. In the second quarter of 2011, demand globally was 919.8 tonnes or $44.5 billion. Much of this demand is coming from the growing economies of India and China. There’s an additional reason for demand in these countries: the threat of inflation. Again, gold provides a safe haven when inflation rears its ugly head. Combine this with currency devaluation and the chaos in stock markets and it’s easy to understand why investors are buying gold bullion.

The downgrade of U.S. debt by Standard and Poor’s also sent investors into gold. The downgrade made this harrowing statement: the world no longer sees government bonds as the ultimate ‘safe bet.’ Again, this type of massive change sends investors flocking to gold… and not just investors: the central banks in China and South Korea are also buying gold.

So is now a good time to buy gold—despite record highs? If current economic conditions persist, then it looks like investors will continue to buy gold. There will be some volatility day-to-day in gold prices but the conditions are currently in place to make the JP Morgan prediction of gold at $2,500 an ounce a strong possibility.

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Can Silver Continue to Provide Big Returns for Investors?

August 16th, 2011 No comments

In the commodities markets, gold gets all the attention. And with all the turbulence in global financial markets and the rising price of gold—it’s no surprise. However, the price of silver has also risen dramatically.

On August 14, the price of silver closed at $39.10 an ounce. That’s up from $30.53 in mid-February and up from $17.99 in mid-August 2010. In a year, silver investors have more than doubled their money. And all this despite a ‘blip’ in the price of silver when the price dropped in May from a high of $48.58 to under $35.

While the increase in gold has certainly helped investors who bought gold, the ‘stealth’ gain has come in silver. Is now a good time to buy silver bullion as part of your investment portfolio? Or is the price likely to decrease?

Let’s take a look at demand first. Silver is used extensively in jewellery, photography, silverware, and in coins. Some of the many uses:

  • Water Purification
  • Medical
  • Mirrors
  • Coatings
  • Solar Energy
  • Water Purification
  • Batteries
  • Bearings
  • Catalysts
  • Electronics

Consumer demand for silver is also strong—especially in emerging and developing markets like silver. This increases demand. And the same global economic factors affecting the price of gold are affecting the price of silver. These include economic uncertainty in Europe and prolonged lack of serious growth in the United States.

Silver is a scarce commodity—like gold. Supply never really catches up with demand. Especially now that silver is being used extensively in growing technologies like solar energy. The Silver Institute says that demand for silver from industry will increase 36% by 2015. And from 1990 to 2000, global consumption was over 2 billion ounces. In 2011-12, consumption in India could top 1,200 tons—based on government figures.

Looking at The Ratio

The historical ratio of the price of gold to the price of silver is 20:1. The ratio is currently 33:1 which means many experts believe silver is due to catch up–making it a good time to think about buying silver. If the ratio catches up, the price of silver could increase to over $100 and even climb to $175.

One country that’s going to continue to buy gold is China. In the past two years, China’s appetite for gold has been insatiable. The country has gone from being a net exporter (100 million ounces a year) to a net importer (150 million ounces a year). The Chinese are buying silver as a hedge against the decline of the U.S. Dollar and the threat of internal inflation.

So it’s an excellent time to think about buying silver to add to your portfolio. The reasons investors buy silver are clear—and motivating these investors to buy this valuable commodity.

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The Real Problem in America and How it Affects the Price of Gold

August 1st, 2011 No comments

If you’ve been anywhere near a newspaper, the Internet, or any news outlet, you’ve heard about the fight in the United States Congress over debt limits and its impact on credit ratings. The ‘punch up’ masks the real financial problems in the United States. And these problems have been helping to push up the price of gold. It makes now an excellent time to buy gold as part of your portfolio.

The national debt in the United States stands at over $14.3 trillion. This debt comes from the cost of keeping entitlement promises to the elderly and poor. In this blog, we’re here to discuss buying gold and not make any political statements. However, the numbers are staggering:

  • Medicaid, health care for the poor, cost American taxpayers $243 billion in 2010.
  • 50.5 million Americans are on Medicaid.
  • 46.5 million are on Medicare.
  • 52 million are on Social Security.
  • 44.6 million are on food stamps and other nutrition programs.

At the current rate of spending, the United States will have to issue up to $10 trillion in new debt by 2021. Why does this mean it’s a good time to buy gold?

To pay for this spending, the United States can raise taxes massively or cut welfare spending. It seems unlikely that either of these will take place in the near future. So America must borrow more AND it must generate more tax revenue by growing its economy. But the economy isn’t growing in the United States—growth rates are stagnant. To light a fire under the economy, the Federal Reserve has used two rounds of ‘Quantitative Easing’ which is another way of saying, ‘let’s print money.’ This decreases the value of the U.S. Dollar and introduces the spectre of inflation.

With inflation a probability and the value of U.S. debt decreasing, investors have been fleeing to gold to protect their assets and provide a hedge against inflation. The market is proving this. Gold is up 11% this year and we’ve seen record prices. Despite these record prices, we believe now is a good time to buy gold. The demand continues to rise while the supply cannot keep up.

With at least another month of global economic uncertainty ahead, the price of gold may experience some dips. However, we believe the upward trend will continue and a good time to buy gold would be in one of these dips.

Gold fund manager Adrian Ash recently told London’s Daily Telegraph, “Physical gold, indestructible and rare, will continue to appeal as the ultimate store of value for retained savings worldwide. Because, just like in the Eurozone, the U.S. debt cannot be settled in full. So it won’t be.”

While the media focuses on the U.S. debt ceiling, significant financial problems will continue to plague America as long as the country continues its current entitlement programs. These problems make it a good time to buy gold.

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