Daily Gains Letter

Losing Faith in Gold? Read This Before You Sell

By for Daily Gains Letter |

Faith in Gold“The sky is falling, sell;” “It’s useless, run away;” “There’s going to be deflation, so it won’t serve any purpose to your portfolio”—these are a few of the ways gold bullion is being described these days. The yellow metal is facing scrutiny, and those looking for it are gasping for air.

Looking at all this negativity, should you lose trust in gold and sell, like the mainstream says?

The scrutiny against gold bullion is significant, but I remain bullish on the metal in the long run. As it stands, I don’t see demand declining, and as the prices remain suppressed, I expect the supply to decrease.

When gold bullion prices slid lower, we started to hear that the buyers would run for the exits, but we still don’t see that happening; as a matter of fact, more consumers are jumping in to buy the precious metal.

The nations that are known as the biggest consumers of gold bullion are still buying. According to the World Gold Council, in the third quarter of 2013, gold bullion jewelry demand in China was 164 tonnes, an increase of 29% from the same period in 2012. In India, the demand for gold bullion remains robust; for the first nine months of this year, the demand for gold bullion was higher than the previous year by 19%, despite the government and central bank working together to curb the demand. (Source: “Gold continues its journey from West to East as buoyant consumer markets balance investment outflows,” World Gold Council web site, November 14, 2013.)

“Consistent with the first two quarters of 2013, the global gold market remains resilient, underpinned by the continued shift in demand from West to East, strong demand in consumer categories and solid central bank and technology sectors,” said Marcus Grubb, managing director of investment at the World Gold Council. (Source: Ibid)

We continue to see robust demand for gold bullion in the U.S. economy as well. As of November 21, the U.S. Mint has sold 32,500 ounces of gold bullion in coins; year-to-date, this number sits at 785,000 ounces. In the first 11 months of 2012, the U.S. Mint sold 677,000 ounces of gold bullion; by that measure, the demand for the precious metal is running almost 16% higher than the last year. (Source: “Bullion Sales/Mintage Figures,” United States Mint web site, last accessed November 21, 2013.)

Seeing wild swings in gold prices is scaring a lot of those who liked the precious metal. I remain bullish because I see the basic principle of economics is still at play—high demand. I agree it is very difficult to remain bullish, but you have to keep in mind that the greatest opportunities come in times of greatest uncertainty.

In this environment where gold bullion is disliked, instead of aggressively buying, investors have to be very selective. If they are looking to add gold miners to their portfolio, they have to assess their financial health carefully and find if they will be able to survive the wild swings in gold prices in the short term.

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