Best of the Week
Most Popular
1.Putin’s World: Why Russia’s Showdown with the West Will Worsen - John_Mauldin
2. Stocks Bull Market Grinds Bears into Dust, Is Santa Rally Sustainable? - Nadeem_Walayat
3. Gold and Silver 2015 Trend Forecasts, Prices to Go BOOM - Austin_Galt
4.Gold Price Golden Bottom? - Toby_Connor
5.Gold Price and Miners Soar on Huge Volume - P_Radomski_CFA
6.Stock Market and the Jaws of Life or Death? - Rambus_Chartology
7.Gold Price 2015 - EWI
8.Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - Nadeem_Walayat
9.Gold, Silver, Crude and S&P Ending Wedge Patterns - DeviantInvestor
10.Is the Gold And Silver Golden Rule Broken? - Michael_Noonan
Last 5 days
The Price Of Gold And The Art Of War - 18th Dec 14
Euro Succumbs to ECB QE Expectations and FOMC - 18th Dec 14
John Williams: A Downhill Run for the U.S. Dollar in 2015 - 18th Dec 14
Outrage at Taliban Islamic Fundamentalists Massacre of 132 Pakistani School Children in the Name of God - 18th Dec 14
How Inflation Changes Retirement Benefit Choices - 17th Dec 14
The Real Reason It's Tough to Beat the Stock Market - 17th Dec 14
Russian Currency Crisis and Debt Defaults Could Create Contagion in West - 17th Dec 14
How to Profit From Russia's Stock Market Crash - 17th Dec 14
Russia Crisis - If You Put Your Money in the Bank Will You Get it Back? - 17th Dec 14
Crude Oil Price Crash, U.S. Employment and Economic Growth - 17th Dec 14
Opposing Forces At Play In Gold and Silver Precious Metals Complex - 17th Dec 14
Wall Street Will Always Find An Excuse For Not Raising U.S. Interest Rates - 17th Dec 14
Torture, Terror And Elite Schizophrenia In The UK - 16th Dec 14
Eurozone Conflict Will Bring a Major Stocks Buying Opportunity - 16th Dec 14
Viewing Russia From the Inside - 16th Dec 14
Gold and Silver Stocks Bottom - Are We There Yet? - 16th Dec 14
The Financial Industry Pigmen Win Again - 16th Dec 14
Crude Oil Price Epic Blowout - 16th Dec 14
Asian Stocks Markets: Sand In The Gears Of The Bull Market - 16th Dec 14
U.S. Dollar Trend Forecast 2015 - Video - 16th Dec 14
Silver Price Bottom? - 15th Dec 14
Gold Price Base Building Bullish Pattern - 15th Dec 14
Stock Market Probable Pop-n-Crash Today - 15th Dec 14
Stock Market Time for a Bounce - 15th Dec 14
Stock Market Euphoria: The Mother of All Ponzi Schemes - 15th Dec 14
Gold - The Weight of Time as Trend - 15th Dec 14
U.S. Dollar Collapse? USD Index Trend Forecast 2015 - 14th Dec 14
The Rushing Stocks Bear Market and How to Prepare - 14th Dec 14
Gold and Silver Dreaming of a White Christmas - 14th Dec 14
Cyprus-style Bank Bail-ins to Take Deposits and Pensions - The Global Bankers' Coup - 13th Dec 14
How To Renounce Your US Citizenship And Become Stateless - 13th Dec 14
Stock Market Downtrend Underway - 13th Dec 14
Gold And Silver - Wall Street, aka United States, Pulls Off Another Destructive Coup - 13th Dec 14
U.S. Congress Has Guaranteed the Secular Stocks Bear Market is Not Over - 13th Dec 14
Gold and Silver Starting to Show Bullish Signs - 13th Dec 14
Arab Spring II is Coming Fast - The Unintended Consequences of Lower Oil Prices - 13th Dec 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Dramatic Stock Market Selloff

Why Negativity Toward Gold Bullion Isn’t Affecting Physical Demand

Commodities / Gold and Silver 2013 Jul 30, 2013 - 05:03 PM GMT

By: DailyGainsLetter

Commodities

Moe Zulfiqar writes: Gold bullion prices fell below $1,200 an ounce by the end of June; now, they are trading above $1,300, down from well above $1,600 in January. Looking at this price action in the gold bullion market,investors are asking if the recent surge after making lows is just a rally based on short covering—investors who were short-closing their positions—or if it’s due to fundamental reasons.


I stand in the camp that believes the rise in gold bullion prices we are seeing is due to fundamental reasons. That said, the sell-off we witnessed in the precious metal prices could take some time to recover.

In spite of the negativity and the notion that gold bullion isn’t useful in one’s portfolio, the physical demand continues to increase. Keep in mind that those who buy gold in physical form tend to have a long-term focus, compared to those in the paper market, who are there to speculate.

We are seeing demand increase here in the U.S. economy. For example, look at the demand for gold bullion coins sold at the U.S. Mint; Richard Peterson, acting director of the U.S. Mint, described it as “unprecedented.” (Source: Mason, J., “U.S. bullion coin demand still at ‘unprecedented’ levels: Mint,” Reuters, last accessed July 29, 2013.) But in the Far East, the demand is much higher.

Consider this: UBS AG (NYSE/UBS), one of the biggest gold-dealing banks in the global economy and based in Switzerland, announced that it will start to store gold bullion in Asia—specifically Singapore—for the first time.

What are the reasons for this move? “Notwithstanding the drop in gold prices, we are still receiving queries on the offering from clients who are keen to reap the benefits of asset and geographical diversification,” said Peter Kok, the regional market manager of Singapore and Malaysia for UBS Wealth Management. “These clients tend to hold a long-term view on gold and enjoy the stability and security benefits which come with holding gold as an asset class.” (Source: Freeman, F. and Wallop, C., “UBS Opens Gold Vault in Singapore Amid Asian Push,” Wall Street Journal, July 2, 2013.)

Mind you, UBS isn’t the only one making this sort of move as the demand for gold bullion in the Far East region is increasing. Other banks, like Deutsche Bank AG (NYSE/DBS) and JPMorgan Chase & Co. (NYSE/JPM), have done the same.

Now, this was just a mere reflection of demand; we must also consider the supply side as well.

As the gold bullion prices decline, the viability for miners to profit declines as well. In short, if the gold bullion miner takes out the precious metal from the ground at $1,250 an ounce, all costs in, and the price goes lower than the extraction costs, that miner’s profitability decreases. This can also force miners to shut down their production and stop future exploration projects, eventually hurting the supply.

One example, Goldcorp Inc. (NYSE/GG), reported a loss of $1.93 billion in the second quarter. This was because it had to write down $1.96 billion for its exploration at Penasquito Mine in Mexico. “Penasquito continues to possess strong exploration upside, but due to lower metals prices, the current in situ market value of exploration potential has decreased significantly,” said Chuck Jeannes, Goldcorp’s CEO. (Source: Koven, P., “Goldcorp reports massive US$1.93-billion second-quarter loss on Penasquito impairment,” Financial Post, July 25, 2013.)

Investors need to focus on risk management and consider their risk and rewards. Those who hold a bullish view on gold bullion may want to look at exchange-traded funds like the SPDR Gold Shares (NYSEArca/GLD) to profit.

Source: http://www.dailygainsletter.com/precious-metals/...

Copyright © 2013 Daily Gains Letter – All Rights Reserved

Bio: The Daily Gains Letter provides independent and unbiased research. Our goal at the Daily Gains Letter is to provide our readership with personal wealth guidance, money management and investment strategies to help our readers make more money from their investments.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014