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Gold Investing Heats Up

Written By Brian Hicks

Posted June 10, 2013

Some two months ago, equities began falling from a near-five-year peak. Around the same time, the dollar began sliding. Both forces together caused gold bullion to spike, and the gold market was doing very well. Then, April saw gold drop off sharply, and analysts and investors have been watching events closely ever since.

A Bloomberg report indicates that good cheer is finally returning to the gold market, with prices anticipated to go up over the coming week. Just recently, gold hit a six-week low as speculation rose to fever pitch regarding a possible tapering-off of the Federal Reserve’s stimulus program. ETP gold holdings have already slid down $45 billion thus far in the year, and weekly sales numbers are headed for their second lowest since March of this year.

The April crash I mentioned earlier kicked off a spate of gold buying (particularly coins and jewelry). Over in India, one of the world’s largest gold consumers, demand skyrocketed so rapidly and steeply that the nation’s government intervened by imposing restrictions on imports.

Bloomberg reports:

“The concern is that we see stock markets come under pressure and then see an increase in risk aversion,” said Mark O’Byrne, the executive director of Dublin-based GoldCore Ltd., a brokerage that sells and stores bullion coins and bars. “Gold’s already had a correction, so people see value in the gold market. There has been significant technical damage done to gold and therefore it will take a period of time to recover.”

With general improvements being made across the U.S. economy, gold was hit fairly seriously. Present numbers show that gold is down 17 percent at $1,383.12/oz in London. That’s pretty stark, considering that gold has gone up continuously over the past 12 years.

Meanwhile, Standard & Poor’s GSCI Index, which measures 24 commodities, is down 2.4 percent thus far in 2013. Equities, on the other hand, are up 7.4 percent by the MSCI All-Country World Index.

April’s drop sent gold prices down to $1,321.95 (as of April 16). That set off a buying spree around the world, and the U.S. Mint has indicated sales figures may reach a record level. April saw 209,500 ounces sold in gold coins. May followed with 70,000 ounces, and June thus far has around 12,000 ounces.

Gold demand is up sharply in India and China as well; the World Gold Council has predicted that India could hit a quarterly record.

Improved Jobs Report

Closer to home, last Friday saw a significant 2 percent drop in gold following encouraging jobs reports. Last month, the nation added 175,000 jobs. Remember that this comes after April raised consternation by adding a below-average 149,000 jobs.

What this means, of course, is that we’re now another step closer to seeing the Fed taper off the stimulus program—hence the drop in gold. Spot gold fell 2.1 percent to reach $1,383.96/oz by afternoon on Friday, though it touched a low of $1,377.29. Comex gold futures for August delivery were down to $1,383.00/oz, according to Reuters.

Reuters quotes Phillip Streible of futures brokerage firm R. J. O’Brien on the abrupt gold sell-off:

“The employment number is better than consensus, and it suggests that Fed bond buying will end sooner than later.”

All of this is ample material to make a savvy investor wonder whether or not to make a move in gold. Investing News Network recently caught up with Sprott U.S. Holdings Chair Rick Rule on just that question.

Generally speaking, Rule stands optimistic about bullion at present. Certainly, given the recent fluctuations and minor crashes, it can seem tempting to cut losses and get out of the market quickly. On the other hand, doing so may ignore the cyclical nature of gold on the market.

Rule’s position is that the recent fluctuations are part of gold’s natural cycle and hasty decisions ought to be avoided. In short, getting out now could prove to be a poorly-planned decision when gold finally goes back up again.

In the longer picture, gold is still extremely attractive; developmental gold juniors currently are at their lowest since 1994. All that means there is opportunity here for crucial gold investments, but they need to be well-researched.


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