Best of the Week
Most Popular
1.Scottish Independence YES Vote Panic - Scotland Committing Suicide and Terminating the UK? - Nadeem_Walayat
2.Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - Nadeem_Walayat
3.Bank of England Panic! Scottish Independence Bank Run Already Underway! - Nadeem_Walayat
4.Gold and Silver Price Ready To Go BOOM - Austin_Galt
5.Gold and Silver Potential Price Meltdown Scenario - Rambus_Chartology
6.Scottish Independence UK Catastrophe - The Balkanisation of Britain - Video - Nadeem_Walayat
7.The Price Of Gold And The Art Of War Part I - Darryl_R_Schoon
8.Main Reason Why Scotland Will Vote NO to Independence, 70% Probability - Nadeem_Walayat
9.Heavy Gold and Silver Shorting is Bullish - Zeal_LLC
10.10 Year U.S. Treasury Short Best Place to be Remainder of 2014 - EconMatters
Last 5 days
Scottish Independence Bank Run Already Underway - Video - 16th Sept 14
The Emergence of the US Petro-Dollar - 16th Sept 14
Economic GDP Drives Stock Prices Inestment Myth - 16th Sept 14
Don't Miss This Gold Buying Opportunity - 16th Sept 14
Why ECB QE Is Bearish For Gold Prices - 15th Sept 14
Property Rights and Property Taxes—and Countries That Don’t Have Them - 15th Sept 14
Junior Miners Breaking Out Higher Forecasting Gold and Silver Price Bottom? - 15th Sept 14
Stock Market Patiently Waiting for Mean Reversion - 15th Sept 14
A Closer Look at the US Dollar - 15th Sept 14
The Silver Price Sentiment Cycle - 15th Sept 14
Stock Market Correction Underway - 15th Sept 14
Marc Faber - “I Want To Be Diversified, I Want To Own Some Gold” - 15th Sept 14
The Myth of Nuclear Weapons - 15th Sept 14
US Dollar Forecast to Go Much Higher - 15th Sept 14
Analysis And Price Projection Of The Uranium Market - 15th Sept 14
Bank of England Panic! Scottish Independence Bank Run Already Underway! - 15th Sept 14
The Ethics of Entrepreneurship and Profit - 14th Sept 14
The Big Investor Opportunity in the Orbital Space Junkyard - 14th Sept 14
Kohl's and The Rest of The Retailers are in Deep Doo Doo - 14th Sept 14
Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - 14th Sept 14
Stock Market Pullback Continues - 13th Sept 14
SNP Fanatics Warn of Day of Reckoning for Scottish Independence No Campaigners - 13th Sept 14
Scottish Independence Would Shake Up the Global System - 13th Sept 14
The World Order Becomes Disorder - 13th Sept 14
Is Geothermal Power About to Become The Next Great Battleground Over Fracking? - 12th Sept 14
Heavy Gold and Silver Shorting is Bullish - 12th Sept 14
Strong U.S. Dollar Undermines Gold and Silver - 12th Sept 14
Debt And The Decline Of Money - 12th Sept 14
Panic On The Streets Of London ... Can Scotland Ever Be The Same Again? - 12th Sept 14
Will The Real Silver Commercials Stand Up? - 12th Sept 14
If You Own Only One Investment, Make Sure This Is It - 12th Sept 14
Main Reason Why Scotland Will Vote NO to Independence, 70% Probability - 12th Sept 14
Better Days Ahead For U.S. Stock And Housing Market - 12th Sept 14
U.S. Meddling Dims Prospects for Ukraine Peace - 12th Sept 14
Is the Fed Preparing to Asset-Strip Local Governments? - 12th Sept 14
China Holds “Gold Congress” - Positioning Itself As Global Gold Hub - 11th Sept 14
Fire Ice Could be Energy's Magic Bullet or a Planet-killing Catastrophe - 11th Sept 14
The Mass Psychosis Of 9 /11 Will Never Be Healed - 11th Sept 14
Radical Islam's Crisis of Competing Caliphates - 11th Sept 14
Ukraine Crisis And Self-Determination - 11th Sept 14
Cameron and Miliband Desperately Attempt to Prevent Scotland Committing Suicide - 11th Sept 14
A Supply Crunch Points to Higher Uranium Prices - 11th Sept 14
The Myanmar Shadow - 11th Sept 14
Europe Takes the QE Baton - 11th Sept 14
Full Frontal Inflation - 11th Sept 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Huge Stocks Bear Market

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