Best of the Week
Most Popular
1.Trump Delirium Triggers Stock Market Brexit Upwards Crash Towards Dow 20,000! - Nadeem_Walayat
2.The Future Price Of Gold Will Drop Below $1000 In 2017 -InvestingHaven
3.May Never Get Another Opportunity to Buy Gold at this Level Again - Chris_Vermeulen
4.Delirium - The Real Reason Why Donald Trump Won the US Presidential Election - Nadeem_Walayat
5.Why Nate Silver / Fivethirtyeight is one of the Most Reliable Election Forecasting Indicator? - Nadeem_Walayat
6.Gold Price Forecast: Nasty Naughty November Gold Price Trend - I_M_Vronsky
7.Gold Mining Stocks Screaming Buy! Q3’16 Fundamentals - Zeal_LLC
8.Delirium of Trump Mania Win's Mr BrExit US Presidential Election 2016 - Nadeem_Walayat
9.The War On Cash Goes Nuclear In India, Australia and Across The World - Jeff_Berwick
10.Hidden Signs for Gold and Silver - P_Radomski_CFA
Last 7 days
Crude Oil and Gold, Silver Precious Metals Link - 8th Dec 16
Stock Market and the Great Middle Class Revolt Gets Bigger - 8th Dec 16
Protectionist Trump Policies To Crash Dollar, Gold and Bitcoin to Soar - 8th Dec 16
The Jaws of Life : The Most Hated Stocks Bull Market in History! - 8th Dec 16
Infrastructure A Budding Asset Class - 8th Dec 16
Trump Stocks Bull Market Furious Rally Towards Dow 20k as Bear Mantra Persists - 8th Dec 16
More Talk About More Economic Growth and More Globalization - 7th Dec 16
Cracks In US Treasury Bond Market, The Japanese Factor - 7th Dec 16
The Rise of Anti-Establishment Italy - 7th Dec 16
Trump Likely to Drive Another Bump in Stock Market Buybacks — Here’s How to Hedge - 7th Dec 16
World War II and the Origins of American Unease - 7th Dec 16
Online CFD Trading for Traders on a Budget - 7th Dec 16
Silver Bullion Price Buying Opportunity for 2017? - 7th Dec 16
The Imminent Multi-Trillion Dollar Surge In Social Security & Medicare Costs - 7th Dec 16
Gold Bullion Price Buying Opportunity for 2017? - 6th Dec 16
Shariah Gold Standard Approved for $2 Trillion Islamic Finance Market - 6th Dec 16
THE Gold Play for 2017 - 6th Dec 16
Trump Sets The Stage For A Huge Gold Rally In 2017 - 6th Dec 16
BrExit Tsunami Claims Emperor Renzi's Scalp, Counting Down to End of the EU, Next? - 6th Dec 16
Failed EU - Means an Expanded Dictatorship - 6th Dec 16
Crude Oil Prices: "Random"? Hardly - 5th Dec 16
The Coming Stock Market Crash and WWIII - 5th Dec 16
This Past Week in Gold Market - 5th Dec 16
Stock Market Short-Term Correction Underway - 5th Dec 16
If Trump Doesn’t Do This, We Will Have the Great Depression 2.0 - 5th Dec 16
India’s Demonetization Could Be the First Cash Domino to Fall - 5th Dec 16
Our Future Economy, Jobs, Banking, And Governance - 5th Dec 16
Gold and Silver Bullion Buying Opportunity for 2017? - 4th Dec 16
First UK BrExit then Trump, Next BrExit Tsunami Wave to Hit Italy HARD Sunday! - 3rd Dec 16
The 10YR Yield and SPX Stocks Bull Markets - 3rd Dec 16
Gold And Silver – Do Not Expect Much Difference With Trump Compared To Obama - 3rd Dec 16
Gold, Currencies and Markets Critical 61.8% Retracements - 2nd Dec 16
Gold Junior Stocks Q3’16 Fundamentals - 2nd Dec 16
Adventures in Castro’s Cuba - 2nd Dec 16
We Are Putting Off the Inevitable - 2nd Dec 16
Macroeconomic Cycles & Demographics - A Fuse, An Explosive and The Igniting Catalyst - 2nd Dec 16
How Moving Averages Can Identify a Trade - 1st Dec 16
Silver Prices and Interest Rates - 1st Dec 16
America, is it Finally time for us to say Goodbye? - 1st Dec 16
Blockchain Technology – What Is It and How Will It Change Your Life? - 1st Dec 16
Burn the Flags, Can Trump Salvage The Sinking US Economic Ship? - 1st Dec 16
Will US Housing Real Estate Market Tank in 2017? - 1st Dec 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

$10000 Gold

When Gold Bullion Prices Will Rebound

Commodities / Gold and Silver 2013 Aug 07, 2013 - 01:54 PM GMT

By: InvestmentContrarian

Commodities

Sasha Cekerevac writes: A common question that I receive from readers is in regard to gold bullion. Many people over the past few years have begun allocating a portion of their investment strategy into the yellow precious metal and are curious about what’s possible in the near future.


Naturally, with gold prices down over 20% this year, this has certainly hurt investors. The questions many are asking are: what will be the catalyst for a boost in gold prices and when will they rebound?

As I’ve discussed many times over the past few months, most of the selling in gold bullion has been through large institutions. These funds have been reallocating their investment strategy to incorporate a different landscape than what we’ve seen over the past few years.

While retail demand for physical gold has remained strong, there still remains far more supply than demand, as can be seen by the relatively depressed price. What is occurring that should help gold bullion prices is that most mining companies are curtailing their production of gold bullion.

Over the past couple of months, gold miners have written off over $20.0 billion in assets, which have become uneconomic due to the high costs of extraction and low price of gold bullion.

If demand remains stable, the eventual supply reduction should help gold prices. The investment strategy by these mining companies is completely appropriate, since one should not be producing at a higher cost than what is available on the open market.

I think we will continue to see many gold bullion producers close mines that have all-in costs in excess of $1,100 per ounce. Anything higher and that leaves an extremely small margin in relation to the current price of gold. The ultimate investment strategy for a company should be maximizing profitability, not simply producing gold bullion at any cost, which will eventually result in losses as costs continue to escalate while commodity market prices plummet.


Chart courtesy of www.StockCharts.com

The selling pressure for gold bullion began to reduce in intensity in the beginning of July, because large institutions have essentially reallocated their investment strategy out of gold. At the same time, we saw demand finally overcome supply and move gold bullion up to the $1,350 area, meaning what had been the support level was then the resistance. Investors in exchange-traded funds (ETFs) have dumped in excess of 600 tons of gold bullion so far this year.

As I wrote last month in the article “Investing in Gold Bullion Is All About Timing—Here’s How to Do It Right,” when gold bullion was trading at $1,240, it appears the risk-to-reward scenario was quite favorable, with the thought that gold bullion could move up to the $1,400–$1,500 area.

If gold bullion miners continue to shift their investment strategy into lower-cost assets, reducing total supply produced, and if physical demand remains strong, we should eventually see a positive push in gold prices.

As an example of supply and demand in action, take a look at the platinum and palladium markets. While gold bullion is down over 20%, platinum is only down approximately six percent and palladium is up five percent year-to-date. This is because both platinum and palladium will, in my opinion, see a deficit in supply this year and most likely next year. Economic demand is improving, creating industrial demand that is greater than the supply, since production is constrained due to serious labor issues in South Africa.

Over the long term, it is beneficial for gold prices if supply is reduced to meet demand and not exceed it. While this shift in investment strategy has hurt investors in gold mining stocks, writing off assets that were overpaid and underperforming does make financial sense. After all, investors don’t benefit if it costs the company more money to produce a commodity than what the firm can get on the open market.

This article When Gold Bullion Prices Will Rebound was originally published at Investment Contrarians

By George Leong, BA, B. Comm.
www.investmentcontrarians.com

Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

George Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. See George Leong Article Archives

Copyright © 2013 Investment Contrarians- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Investment Contrarians Archive

© 2005-2016 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

Catching a Falling Financial Knife