Best of the Week
Most Popular
1.SNP Offers Labour Deadly Death Embrace Alliance, Holding England to Ransom, Destroy UK From Within - Nadeem_Walayat
2.Gold And Silver – Most Widely Used Currency In Western World? Stupidity - Michael_Noonan
3.Election Forecast 2015 - Coalition Economic Recovery vs Labour Collapse - Nadeem_Walayat
4.Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - Nadeem_Walayat
5.Why are Interest Rates So Low? Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It - Mike_Shedlock
6.Leaders Debate Election 2015 - Natalie Bennett Green Party Convincing Anti-Austerity More Debt Argument - Nadeem_Walayat
7.Labour Economic Collapse vs Coalition Recovery - UK Election Forecast 2015 - Video - Nadeem_Walayat
8.China’s Stock Market Mania; How High can Red-chips Fly? - Gary_Dorsch
9.Gold and Misery, Strange Bedfellows - 31st Mar 15 - Dan_Norcini
10.Ed Miliband Debate Election 2015 Analysis - Labour Spending, Debt and Economic Collapse - Nadeem_Walayat
Last 5 days
Inflation, Central Banks, and Business Cycles - 18th Apr 15
Stock Market Correction May be Nearing End - 18th Apr 15
UK Housing Crisis, Immigration, Population Growth, Election Forecast 2015 - Video - 18th Apr 15
Q1 Corporate Earnings Risky for Stocks - 17th Apr 15
US Stock Market Getting Scarier by the Day - 17th Apr 15
Stock Market Watershed Day - 17th Apr 15
Gold Price Has “Hallmarks Of Market That Is Bottoming” - 17th Apr 15
Chinese Stock Market - Men Go Mad in Herds - 17th Apr 15
Two Stocks Offering Investors High Yields and Profits - 17th Apr 15
Gold Price Has “Hallmarks Of Market That Is Bottoming” - 17th Apr 15
Chinese Stock Market - Men Go Mad in Herds - 17th Apr 15
Two Stocks Offering Investors High Yields and Profits - 17th Apr 15
King Dollar Hurting Stock Market Corporate Earnings! - 17th Apr 15
Production Declines Hide Bigger Crude Oil Storage Issues - 17th Apr 15
Top Three Takeaways From Today’s OPEC Crude Oil Report… and How You Can Profit - 17th Apr 15
How to Profit from Australia's Healthiest Biotech Stocks - 17th Apr 15
What Is Really Driving Gold Price? - 17th Apr 15
Will Ever More Boomers Selling Retirement Assets Change Investment Prices For Decades? - 16th Apr 15
Won't Be Contagion with 'Grexit' Greece Euro-zone Exit - 16th Apr 15
Sharp Decline in USD/CAD and Its Consequences - 16th Apr 15
Blackstone is like Apple, Google, Hermes, Boeing - 16th Apr 15
The Most Dangerous Financial Headline I've Seen Since the 2008 Crisis - 16th Apr 15
Is Legal Tax Avoidance Extinct in the UK? - 16th Apr 15
Why Russia Will Send More Troops to Central Asia - 16th Apr 15
More Thoughts on the Current Crude Oil Market - 16th Apr 15
U.S. Treasury Secretary Warns Greek Exit Will Cause Enormous Disruption and Hardship - 16th Apr 15
The Hottest New Place to Find Stock Dividend Income in Q2/2015 - 15th Apr 15
How to Escape the Pensions Squeeze - 15th Apr 15
Water Crisis Game Changing Water Revolution - 15th Apr 15
The Drying of California - Corporate Farms Control of Water - 15th Apr 15
OPEC Going Broke, Dumping U.S. Dollars. Is That Good Or Bad? - 15th Apr 15
OPEC Just Confirmed It’s Losing the Oil War - 15th Apr 15
Four Uranium Companies Poised to Profit from the Growth of Nuclear Power - 15th Apr 15
Stock Investing Tread Softly… and Carry a Big Risk-Management Calculator - 15th Apr 15
Crude Oil Price Technical Outlook - 15th Apr 15
Important Bitcoin Price Action - 15th Apr 15
UK House Prices, Immigration, Population Growth and Election Forecast 2015 - 15th Apr 15
Peter Schiff on U.S. Dollars, Drachmas and Debt - Video - 14th Apr 15
The Ultimate Middle East Dilemma: Time For Us To Stop Intervening? - 14th Apr 15
Greece Debt Default and Drachma By End of April? - 14th Apr 15
Coming to Terms With the American Empire - 14th Apr 15
The Ball is in the Stock Market Bulls Court - 14th Apr 15
Tech Stocks Bubble: Different this time? - 14th Apr 15
Stock Market Sixth Sense - 14th Apr 15
Separating Gold and Silver Stocks Saints from the Sinners - 14th Apr 15
Conservatives Bribe Labour Voters by Extending Right to Buy to Housing Association Tenants - 14th Apr 15
Stacking Silver = Simple Solution - 13th Apr 15
Why Markets Ignored Weaker Payrolls - 13th Apr 15
Tory Attack on Ed Milliband Backfires as Labour Takes Opinion Polls Lead - 13th Apr 15
A "Digitalized" Stock Profit Play Mr. Spock Would Love - 13th Apr 15
New Credit Crunch Underway: Can Recession Be Far Behind? - 13th Apr 15
Western Interest in Gold Continues to Decline - 13th Apr 15
Stock Markets Breaking Out Worldwide - Buy the Dips Ride the Trend - 13th Apr 15
Silver Price set up to get Whacked Again - 13th Apr 15
Gold Price Dome Cap, Fall Below $1000 Likely - 13th Apr 15
Stock Market Accumulation or Distribution - 13th Apr 15
BLS Economic Propaganda, Truth – The Cure for Cognitive Dissonance - 12th Apr 15
A Case for Monetary Independence - 12th Apr 15
Drought and the Failure of Big Government in California - 12th Apr 15
Stocks Bull Market Continues - 11th Apr 15
Why the American Consumer Will Never Be Back - 11th Apr 15
End Of Islam, Hinduism And Christianity And Rise Of The Age Of Humanism, Spirituality And The Universal God - Sanadhana Dharma - 11th Apr 15
Gold And Silver Nothing Of Substance Going On. Fiat “Dollar” Controlling? - 11th Apr 15
The Most Dangerous Financial Headline I’ve Seen Since 2008 - 11th Apr 15
Alibaba Pggybank Investment Will Make You a Millionaire - 11th Apr 15
Ghosts In The Machine - Population Growth vs Food Production - 11th Apr 15
Gold-Futures Short Covering Rally - 11th Apr 15
Is Bitcoin Price Going down Some More? - 11th Apr 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

US Historic Bubble

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

© 2005-2015 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