Archive for May, 2012

Making the right choice on whether to buy gold or buy silver

May 15th, 2012 No comments

Should you buy gold or buy silver? Gold and silver are two of the most popular precious metals for both investors and consumers. While they’re both attractive investments, investors should know some of the key differences.

Should you buy silver?

The silver market, at around $9 billion, is 5 percent the size of the gold market. Silver is cheaper than gold, but its relative affordability and smaller trading market doesn’t mean you shouldn’t buy silver. The silver market has exploded in recent years and trading volumes are up. Silver prices rose over 700 percent in the decade to 2011 and reached a 31-year high, according to the Wall Street Journal.

One of the key reasons why investors should buy silver is related to supply considerations. Industrial applications include currency coins, imaging, mirrors, and electronics. New technological applications such as solar panels and water purification suggest that silver demand is likely to continue growing.

According to the Silver Institute, in 2010 total mine production was around 735 million ounces while total industrial demand was 560 million ounces, leaving only 175 million ounces for investment, coinage, and consumer use.

While gold has a high reuse rate, almost all the silver in industrial use is trashed after completion. Around 25 percent of demand must be derived from existing supply. For many years the world has used more silver than it produced. Given the growing demand, prices are likely to rise over the long term, and investor thinking to buy silver may find it a profitable strategy.

Or perhaps…buy gold
Gold has also performed extremely well over the past 10 years, with prices growing around 470 percent in the year to 2011 (according to the Wall Street Journal). Some investors have been concerned with the short-term volatility associated with gold prices in recent times.

However, short-term volatility as observed in early April 2012 can be an indication that it might be a good time to buy gold by taking advantage of lower prices. Indeed, investors still highly value gold. The US CNBC’s quarterly survey in March 2012 found that investors named gold the “best investment”, outranking property and the stock market, with many choosing to buy gold rather than stocks or property.

Another factor to consider when assessing whether to buy gold is gold’s status as the ‘fourth currency’. With the US overwhelmed by debt, Japan’s ageing population, and Europe’s dire debt problems, gold’s status as a safe-haven fourth currency may see prices continue along similar lines to what we have seen in past decades.

In uncertain times, gold and silver remain two of the most sought-after precious metals. Whether you choose to buy gold or to buy silver will depend on your investment goals, and a diversified portfolio may include both commodities.

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What Factors Affect the Price of Gold Bullion?

May 8th, 2012 No comments

Trading in precious metals has always been one of the safest ways to invest as these metals tend to retain their value over time. Buy gold, silver, or other precious metals and you’re likely to see a growth in value over time. In recent years, buying gold as an investment has become one of the most popular ways to safeguard one’s wealth.

Wealth creation can be realised when you buy gold or sell gold, and factors that influence gold bullion prices are varied, but all relate to demand or supply. Some of these factors include:

  • Cultural and seasonal factors. Indian and Chinese cultures value the use of gold in cultural and religious practice. For example, demand for gold in China usually experiences a hike before the Lunar New Year, when private individuals buy gold as presents for the annual festive period.
  • Monetary policy. Central bank policies on gold and interest rates can affect gold prices. Higher interest rates can lead to an easing in demand and encourage people to sell gold as prices start to drop.
  • Global volatility. When there’s high volatility in world markets, investors tend to turn to stable investments such as gold. Central banks, too, buy and sell gold to maintain their official gold reserves and in order to manage foreign exchange risk. Gold is one of the highly valued precious metals (or safe-haven assets) for hedging against financial stress, whether it’s inflation, deflation, or currency devaluation.
  • Prices. High prices can cause investors to sell gold when prices reach a level where their ideal return on investment has been met. Similarly, low prices can encourage investors to buy gold while prices are relatively affordable but likely to increase.
  • Production. Many countries don’t produce enough gold to meet their consumption, investment, or industry requirements to buy gold.
  • Major currencies. The movement of major currencies can have an effect on gold prices as currency trading and gold are investment alternatives. The US Dollar is the most-traded currency in the world, and a high US Dollar tends to boost demand for the US Dollar. Gold prices tend to rise in times when investors turn away from currency trading.
  • Socioeconomic trends. Major socioeconomic trends can have a massive influence on the price of gold through the demand. India and China, each with a large and growing middle class, are two examples with a strong demand to buy gold.

Gold bullion prices are affected by a wide variety of factors that range from government policy and market volatility, to production and major socioeconomic trends. Seasoned investors study the market by examining these factors when choosing whether to buy gold or sell gold.

China continues to buy gold

May 1st, 2012 No comments

China is close to becoming the top importer of gold bullion in the world. According to the World Gold Council, imports to the People’s Republic of China (PRC) overtook those of India in the final quarter of 2011 as Indian demand dropped from 298.6 in the December 2010 quarter to 173 tonnes in the December 2011 quarter. China’s growing demand suggests that this might be a good time for investors to buy gold.

According to the Financial Times, China imported around 428 tonnes of gold (via Hong Kong) in 2011, around three times the numbers for 2010. The 56.9 tonnes for September 2011 was a six-fold increase from 2010. A report from Reuters noted that there was a 20 percent jump in imports from October to November 2011, when a record 102.525 tonnes were imported as demand to buy gold soared.

Quick facts:

  • China imported around 490 tonnes of gold in 2011, double the 245 tonnes estimated for 2010 (according to the Financial Times).
  • India imported 969 tonnes of gold in 2011 (according to the World Gold Council).
  • China’s total gold demand rose by 20 percent to hit 769.8 tonnes in 2011, while overall global demand exceeded 4,067 tonnes for 2011 (according to the World Gold Council). It’s clear that many Chinese consumers wanting buy gold were unable to find sufficient supply from local producers.
  • A recent report by Reuters suggested that the doubling of the gold import duty by the Indian government could lead to an easing of the Indian demand to buy gold and cause China to become the world’s biggest buyer.

The PRC is already the world’s top gold producer, with its gold output exceeding 360 tonnes in 2011 (according to the China Gold Association). However the rise of its middle class has led to a burgeoning demand to buy gold, making it a top importer as well.

Demand to buy gold led by China’s rise is likely to be bullish for gold prices. China has around 6,328 tonnes of explored gold reserves but its insatiable internal demand for gold exceeds the country’s ability to match local production with demand. For this reason, Chinese demand will probably continue to play a significant role in the gold market.

China’s rising middle class is opting to buy gold in order to safely store wealth. Much of China’s demand comes from private individuals, but the government itself has been vocal about gold’s attractiveness. The central bank of China has suggested that to buy gold is a safe approach. According to a news item in the Business Insider, Zhang Jianhua, an official from The People’s Bank of China, stated in December 2011 that “the only choice to hedge risks is to hold hard currency –gold”.

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