Are You Anxious About Gold Prospects?

December 5, 2013 | By | Reply More

Long term western investors in gold, silver and PGMs (Platinum Group Metals) have many reasons to feel anxious about the future of gold prospects particularly in the near to mid term.

They can be forgiven for their nervousness when considering the barrage of verbiage from analysts playing down the sector coupled to the fact that gold is down not far off 35% in the two years since peaking at $1920 in September 2011.

The fiat money creating program so rashly undertaken has allowed the US and Europe to believe that the woes that beset these nations in 2008 have been put to bed and growth and prosperity is once more the order of the day. So is gold at the crossroads? Probably not yet.

Debt, Leveraging and Tapering Reaching Dangerous Levels

There is little doubt that the QE policy has fuelled the stock markets to new all time highs and many believe that the outflow from precious metal markets is largely due to the greater rewards to date that stock and shares have allowed.

Whilst the big banks are getting a nice regular turn from  the Feds funding of treasuries as China is backing off from this market, the stock market players are enjoying their highly leveraged returns.  Now we read that personal borrowing is reaching, if not surpassing, levels reached before the crash of 2008. Sooner or later both excessive borrowing to fund stock market plays, Joe Public’s increasing personal debt against a background of falling real wages and the much threatened dawning of the taper which must happen sooner or later is likely to burst this current bubble of economic optimism, particularly as this scenario develops then interest rates are likely to rise.

If only we could call the timing of these events we could say with confidence that gold is at the cross roads and will take the high road.

Gold Futures Not that Much Different From Fiat Currencies

We can argue that it is the futures market with its multitude of hedge funds, highly leveraged players et al and not to forget the major western banks that have been largely responsible for putting the wind up us gold bugs. And of, course, it is a paper market! As it is only notionally backed up by the promise of settlement by the physical metal, of which there would be a horrendous shortfall if delivery was demanded, it does not differ that much from any fiat currency, with the shaky US dollar in the lead.

Is Gold Backing China’s Ambitious Plans?

The most obvious scenario in this present situation is the fact that China is increasing its gold reserves at the fastest rate ever. It has passed legislation allowing businesses to import and export gold and increased the amount of gold private individuals may bring into the country. No official release on the amount of gold in China’s reserves has been released since 2009 with observers confidently predicting that they are far larger than previous estimates.

Most telling of all the country is calling for a “de-Americnised world” pursuing the theme by no longer accumulating foreign currency reserves and cutting back its purchases of US treasuries. The plan is to allow the Yuan to float in order to surpass the dodgy US dollar as the worlds favoured trading currency. What odds that there will not be an element of gold backing Chinas ambitions.

Asia’s Gratitude To US Gold Sellers

Is gold at the crossroads? Could happen at any time. Are the Chinese waiting for the developing western bubble to burst or will they continue to forge ahead with their plans to relegate the US to economic has beens. In the meantime just consider how grateful the emerging nations, particularly of South Asia are for the West turning their backs on gold and silver by selling the metals down when all the fundamentals have and continue to call for at least a price stability around the pre September 2011 highs.

No wonder they have been loading up at these  current prices. Incidentally it is encouraging to note that Bullion Vault report that their numbers are holding up, that is that private individuals using the company to trade and store their gold or silver are not selling up. The vast majority of Bullion Vault customers are westerners and Bullion Vault is the world’s largest online investment gold service.

Gold at the Gallop – One Day

That brings us back to our question. Is gold at the cross roads? Our answer is a confident maybe. How long it may linger before making up its mind is a question we cannot answer. It may well drop below its current floor of $1200 an oz, even south of $1100 which will please Asian buyers even more. But in due course events will drive it to take the road north and when it does it will rapidly go from a slow walk to a full blooded gallop dragging the rest of the precious metal sector with it.

Some of the miners are looking like bargain buys right now but approach with caution. It may also be time to buy physical precious metals but we would advise a ‘cost averaging’ approach. As we have just pointed out their could be a further slide on the cards before a turn around. Do not be put off by the thought that buying bullion requires a lot of capital, Bullion Vault gives the same high standard of service to those of limited means as to their wealthier clients. This market calls for patience, perseverance and confidence in the fundamentals that have withstood the test of time .

 

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