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Archive for June, 2012

Choosing Gold in the Midst of Europe’s Turmoils

June 30th, 2012 No comments

With some investors turning to the US dollar in the midst of Europe’s turmoils, it might be a good time to sell gold bullion. However, it could be an equally good time to buy gold bullion to take advantage of the potential for a rally in gold prices once European central banks start printing money again. Here is a review of some of the current trends in Europe that could affect gold prices in the near term and the longer term.

Europe’s Turmoils

  • Greece. Greece is the most recent country to attract international attention with respect to the European sovereign-debt crisis. The growing speculation that Greece may soon have to exit the Eurozone has contributed to a rise in the US dollar.
  • Lower gold prices. According to a recent report by Reuters, gold is currently hovering at around a 4 ½ month low, and has for the most part, moved in line with other commodities. With gold’s inverse relationship with the US dollar (which according to Bloomberg News has seen 12 consecutive days of gains against a basket of currencies as of May 16, 2012), it could make for a good opportunity for investors to buy gold or buy gold bullion and take advantages of these lower prices.
  • Gold still a safe haven? Given time however, a ‘Grexit’ and further Eurozone troubles could potentially lead to more quantitative easing, and in turn to higher inflation. Coupled with devaluing currencies, this could drive gold prices up as investors search for stable and safe haven commodities that might offer protection against inflation.

Why Buy Gold Now?

Although gold is negatively correlated with the US dollar, there’s potentially an opportunity for astute investors to buy gold now and possibly realise a gain as gold prices recover. This might be achieved by using a strategy to sell gold bullion once gold prices start bouncing back.

  • It has been widely reported that Goldman Sachs has recently predicted a record price for gold in the near future and expects to see it rise 26 per cent to $US 1,940 in the year to come.
  • A Reuters report has suggested that lower prices has led Asian consumers to buy gold, with surging demand from countries such as India, Thailand, and Indonesia.
  • The World Gold Council’s investment MD Marcus Grubb has predicted (in an interview with Mining Weekly Online) an upturn for gold once the Greece turmoil stabilises.

For the above reasons, it might be a good time to consider investing in gold or to buy gold for a hedge against longer term inflationary trends.

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How India is Buying Up Gold

June 25th, 2012 No comments

To buy gold and use gold is a common practice in many cultures. In countries such as China and India, gold holds a significant cultural value. According to the World Gold Council, India remained the top buyer of gold in 2011, ahead of China. We look at how this key Asian market is buying and using gold.

India’s insatiable demand for gold

  • With around 933 tonnes purchased in 2011, India is the leading buyer of gold in the world. China follows as a close second to India, purchasing 769.8 tonnes of gold in 2011.
  • To buy gold for relatives and friends often holds a cultural or religious significance in these two countries. In India, gold is associated with religious festivals such as Diwali.
  • To buy gold bullion or jewellery and wear it is sometime seen as a symbol of wealth or a secure way to hold wealth. China and India are expected to continue to account for more than 50 per cent of the world demand for gold in the coming years, particularly as living standards and spending power grows.
  • The World Gold Council has suggested that China will overtake India in 2012, with the PRC’s demand expected to surge by up to 30 per cent, and India’s demand to fall to 800 tonne to 900 tonnes. While global gold demand fell by 4.6 per cent in the first quarter of 2012, China’s rising middle class is expected to continue boosting world demand for gold.
  • According to the World Gold Council’s Gold Demand Trends Q1 2012 report, demand in India fell from 290.6 tonnes to 207.6 tonnes from a year ago, with investment demand falling 46 per cent and jewellery demand falling 19 per cent. The Council states that these falls and the expected slight decline in India for 2012 is partly attributable to the raising of taxes and import duties in India. Lower prices could mean that it’s a good time for investors to buy gold bullion.
  • However, to buy gold bullion and utilise it as a gift is a common practice in India. For this reason, it’s likely that investors and consumers will simply adjust to the higher taxes and duties, given some time.

Demand for gold expected to grow

According to comments by the World Gold Council’s Jason Toussaint in 2011 (as reported by Business Insider), only 40 per cent of Indian households buy gold. The remaining 60 per cent of Indian households might have a similar level of demand for gold that’s not yet realised. According to Toussaint, should current long term purchasing trends continue in India, Indian demand for gold could grow by as much as 400 per cent by 2025.

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Falling Silver Prices Present an Opportunity

June 18th, 2012 No comments

Both silver and gold markets have experienced some volatility in recent periods. The current low prices could be an attractive opportunity for investors seeking to buy silver and perhaps later to sell silver at a higher price. We look at some of the recent trends on the silver market, including demand drivers and changes to Chinese regulations, and how investors might be able to take advantage of the opportunity.

Recent trends

While silver prices have experienced some volatility, silver prices have risen at twice the rate of gold prices in the past year, according to a recent report (by Debbie Baratz) published on CBS News.

  • Silver still has a role as a commodity for wealth storage. Its attractiveness to investors seeking to buy silver or sell silver comes from the fact that it is an in-demand material for industrial and technological applications. As such, the current volatility could be a positive thing for investors seeking short-term speculative gains.
  • More investor confidence in the global economy tends to increase growth, which in turn tends to boost demand for silver. For this reason, there may be opportunities for investors looking to buy silver and hold beyond the end of 2012.

Demand drivers

Silver sales have been forecasted to increase by some well-known silver market commentators, including David Jollie as reported by Bloomberg News, and Philip Klapwijk in an April 2012 interview with Dow Jones Newswires.

  • According to the Silver Institute’s figures for 2011, around 80 per cent of silver demand is linked directly to fabrication demand (encompassing industrial demand), which has been forecast by the Institute to continue increasing sharply until 2015.
  • The growth in demand is likely to be driven in part by China’s growth and the growth in demand for electronics products around the world.
  • Anticipated further loosening of monetary policy around the world might also lead to increased demand for silver from investors.

Given these demand factors, the current trough in prices could be a great opportunity to buy silver.

Changes to silver trading regulations in China

The Shanghai Futures Exchange began trading silver futures in May, so private investors in China can now trade silver futures, which is likely to have a positive effect on silver prices. Previously, Chinese investor could only trade indirectly or on the international markets when they wanted to buy or sell silver futures. The introduction of the silver futures market could boost market size and lead to increased liquidity.

While silver prices have fallen in recent quarters, there are several good reasons to have a bullish outlook for the coming year. A range of demand drivers and the introduction of silver futures trading in China are likely to spur silver prices in the medium term. This could mean it is a good time to buy silver now.

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