The massive sell-off in the price of gold bullion has certainly shaken up some investors. However, it seems there are others whose investment strategy has been to wait for a pullback in gold to continue accumulating the precious metal.
Recent data has shown that China imported gold bullion from Hong Kong at a record-high level in March. Net imports into China of gold from Hong Kong were 130,038 kg, compared to 60,947 kg of the yellow metal in February, according to Bloomberg. (Source: “China’s Gold Purchases From Hong Kong Expand to Record,” Bloomberg, May 7 2013, last accessed May 8, 2013.)
While these imports happened prior to the sell-off in the price of gold bullion in April, China has clearly been using an investment strategy to continually accumulate the precious metal whenever it can. With the price of gold in April dropping 14% in just two days—the biggest sell-off in 30 years—this led to an increase in demand for jewelry and coins in China.
Essentially, gold transactions have increased as many more participants use the metal for trading purposes as an investment strategy. Exports of gold from China into Hong Kong were 93,481 kg, a huge jump from February’s exports of the yellow metal of 36,159 kg. Profiting from the volatility, trading in gold continues to skyrocket globally.
The volume of gold bullion on the Shanghai exchange hit a record high on April 22 of 43,272 kg. As more traders use gold in their investment strategy, transactions continue to increase substantially. Following the sell-off in gold bullion prices on April 15 and 16, the China Gold Association reported that retail … Read More
An investment strategy can take many forms. For long-term investors, one investment strategy is to wait for significant pullbacks and enter positions when the price declines.
The recent sell-off in gold bullion has created a substantial increase in demand for the precious metal around the world. It appears that many long-term investors globally are using the investment strategy of buying on dips when it comes to gold.
Following the biggest sell-off in the price of gold bullion in 30 years, international investors are taking the pullback as an opportunity in their investment strategy to accumulate the metal. A sign of demand is the premium that gold buyers are willing to pay.
In many parts of the world, such as Dubai, physical gold bullion prices paid by wholesalers are trading at a premium of $6.00–$9.00 an ounce over the spot rate in London, versus a premium of only $0.50 prior to the sell-off, according to precious metals service provider MKS (Switzerland) SA. (Source: Sim, G., “Gold Rush From Dubai to Turkey Saps Supply as Premiums Jump,” Bloomberg, April 30, 2013, last accessed May 3, 2013.)
The gold bullion trade in Dubai was worth approximately $56.0 billion in 2011, up from only $6.0 billion in 2003. The premium for physical gold is even larger in Turkey. Gold traded as much as $25.00 per ounce higher on the Istanbul Gold Exchange versus London’s price for gold.
The increase in demand for physical gold bullion is a sign that many long-term holders have the investment strategy of buying when the price dips. Considering that the recent sell-off in gold was so significant, long-term bulls … Read More
One of the most confusing topics of late is the low level of the inflation rate even though monetary stimulus has been quite aggressive worldwide. The most recent data point came from Japan, in which consumer prices dropped by 0.5% in March versus the same time in 2012.
The Bank of Japan is just now beginning a new monetary stimulus plan in the hopes of moving the inflation rate back into positive territory, with the target at two percent. However, some analysts question the possibility of reaching the target inflation rate over the next couple years, even with this monetary stimulus plan. (Source: Fujioka, T., et al., “Bank of Japan Sees Inflation Nearing Target in 2015: Economy,” Bloomberg, April 26, 2013.)
This aggressive monetary stimulus package has driven the yen weaker, benefiting export-oriented companies; however, while the general inflation rate is low, prices for imports such as energy will continue to rise as the currency declines. Additionally, the monetary stimulus program to drive up the inflation rate will have an impact on property prices and will raise rent levels.
However, monetary stimulus is not enough to gain traction and increase the inflation rate. Japan needs structural reforms to its business sector to encourage expansion and growth. Psychologically, the average Japanese citizen has been used to price declines for many years—this mentality will be hard to change. As an example, the latest report showed that TV prices fell by 19% from last year. (Source: Ibid.)
In America, we’ve had monetary stimulus for quite a while, yet the inflation rate is still quite low, below the targeted level. In March, the consumer … Read More
As is quite evident from the past couple months, investing in gold can be rather volatile. Clearly, the huge sell-off in the price of gold bullion over the past couple of weeks has shocked some people; an interesting result has been the reaction from the retail public, as many are now buying gold bullion in record amounts.
Last week, the United States Mint actually ran out of the smallest American Eagle gold coin, and sales to India were 20% higher than the previous record, according to Standard Chartered PLC. Clearly, physical demand remains strong for gold bullion. (Source: Roy, D., et al., “Gold Rout for Central Banks Buying Most Since 1964: Commodities,” Bloomberg, April 25, 2013.)
Here is a key question for those who are considering investing in gold: what are your goals? Is a person investing in gold to diversify his or her assets or to trade and generate profits?
Having gold bullion as part of one’s portfolio can make sense as long as it’s understood that volatility will continue to be present. Since larger investors have added gold bullion as another asset to trade, determining the price of gold bullion has become increasingly difficult.
A chart for gold bullion is featured below:
Chart courtesy of www.StockCharts.com
The recent drop in gold bullion erased an estimated $560 billion in the value of central banks’ holdings, and it was one of the largest drops in 30 years. The huge spike in volume and the massive move indicate several large stops were triggered, causing the holders to liquidate their positions.
The question now: is the selling in gold bullion completed? Since … Read More