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As contrarian investor Baron Rothschild said, “the time to buy is when
there’s blood in the streets.” Here are five reasons we believe this sell-off sets up a buying opportunity for gold. Words: 388
So says Frank Holmes (www.usfunds.com) in edited excerpts from his original article*.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Here are the five reasons:
- Abundance of debt exists: It is precisely the debt strangling the eurozone which will drive gold demand over the longer term. The side effect to the abundance of printing by central banks in the U.S., Europe, Japan and England is bloated balance sheets amounting to nearly $8 trillion. This is double the amount that it was only three and a half years ago.
- Negative real interest rates to remain: Several developed markets have negative real interest rates and these rates are anticipated to remain negative for years to come. Historically, when the inflationary rate is greater than the current short-term interest rate, gold prices rose [Read: The Future Price of Gold and the 2% Factor].
- Central bank purchases to continue: Emerging market central banks continued their gold buying spree in March. UBS Investment Research says that Mexico bought 16.8 tons, Russia bought 15.6 tons and Turkey added 11.5 tons. Additional small purchases were made by Tajikistan, Kazakhstan and Belarus…..HSBC Global Research expects this buying trend to continue for another five years.
- China buying record quantities: In March, shipments of gold from Hong Kong to mainland China grew to 62.9 tons which, according to UBS, is the third largest volume of gold in a decade. With ongoing rising demand, China may overtake India this year as the world’s largest gold buyer.
- India’s government abolished the excise duty on gold jewelry: This was one of the reasons for the jewelers’ strike, which drove gold imports to decrease 55 percent in India a few months back. Getting rid of the tax should encourage the restocking of gold and bring Indian gold buyers back to the market….
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Conclusion
Over the past decade, these Fear Trade and Love Trade drivers have spurred gold higher, even as the yellow metal experienced short-term corrections along the way. Only hindsight could show how these corrections set up buying opportunities.
*http://www.usfunds.com/investor-resources/frank-talk/gold-takes-it-on-the-chin-whats-next/?CFID=5158716&CFTOKEN=67108767 (To access the articles please copy the URL and paste it into your browser.)
Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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It is my contention that the price of gold rallies whenever the U.S. dollar’s real short-term interest rate is below 2%, falls whenever the real short rate is above 2%, and holds steady at the equilibrium rate of 2%. Furthermore, for every one percentage point real rates differ from 2%, gold moves by eight times that amount per year. So if the real rates are at 1%, gold will move up at an 8% annualized rate. If real rates are at 0%, then gold will move up at a 16% rate (that’s been about the story for the past decade). Conversely, if the real rate jumps to 3%, then gold will drop at an 8% rate. [Let me explain.] Words: 982
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7. Deja Vu? Is Gold Just in a Correcting Phase on Its Way to Parabolic Peak of $4,294?
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