Best of the Week
Most Popular
1.Stock Market Crash and Recession Indicator Warning: Extreme Danger Ahead - Harry_Dent
2. Is This How World War III Begins, In Almost Complete Silence? - Jeff_Berwick
3.Trump Wins 2nd Presidential Debate, Betfair Betting Markets Odds Bounce - Nadeem_Walayat
4.Why Krugman, Roubini, Rogoff And Buffett Dislike Gold - GoldCore
5.End of SPX Stock Market Correction Nears - Tony_Caldaro
6.Get Ready for the Future - Exponential Machine Intelligence Mega-trend towards Singularity - Nadeem_Walayat
7.US Housing Market Bubble II – It’s Happening Again! - Andy_Sutton
8.FTSE BrExit Stock Market Panic Crash Resolves towards New All Time Highs - Nadeem_Walayat
9.Can Trump Still Win Despite Opinion Polls, Bookmakers and Pundits all Saying Hillary has Won? - Nadeem_Walayat
10.Gold’s, Miners’ Stops Run - Zeal_LLC
Last 7 days
The Next Big Shoe to Drop – Student Loans - 27th Oct 16
The Twists and Turns of the Greenback - 27th Oct 16
Obamacare Is Draining Our Financial Reserves - 27th Oct 16
Brexit II: Is Donald Trump a False Flag? - 27th Oct 16
“Chindia” Buying Gold on Dips, 20% Corrections Are “Non Events” - 27th Oct 16
4 Incredible Market Forecasts You Have to See to Believe - 26th Oct 16
Silver Prices in an Exponential Financial System - 26th Oct 16
Rigged Election: Hillary and Trump Caught Partying Like BFF’s With Kissinger at Jesuit Gala - 26th Oct 16
The Current Message of Yield Curves: Inflation or Deflation? - 25th Oct 16
Broken Central Banks: 4 Quick Pix - 25th Oct 16
Government Stimulus is an Oxymoron, Debt to GDP - 25th Oct 16
Where Will Crude Oil Price Head Next? - 25th Oct 16
Diamonds in the Gold and Silver Mining Stocks - 25th Oct 16
Trump’s Gettysburg Address against the New World - 25th Oct 16
This Past Week in Gold - 24th Oct 16
Can Gold Continue To Rise, Since The Usd Is Moving Higher Too? - 24th Oct 16
Why are Americans Avoiding the Stock Markets; Fear or Lack of Money? - 24th Oct 16
The US Is NOT a Low-Tax Jurisdiction - 24th Oct 16
Stocks, Crude Oil and EURUSD Trend Forecasts - 24th Oct 16
Stock Market Another Month to Go? - 24th Oct 16
Large Sell-off in Stock Market Looming - 24th Oct 16
Ungovernability - 24th Oct 16
Stock Market Boredom Before The Storm - 24th Oct 16
Establishment Mainstream Media Elite Buys US Election for Hillary Clinton, Time Running Out for Trump - 23rd Oct 16
Inflation About To Explode Higher - 22nd Oct 16
Still waiting for SPX uptrend to kick off - 22nd Oct 16
Will a Rising US Dollar Crush Gold’s Fledgling Bull? - 22nd Oct 16
Why The Global Economy Will Disintegrate Rapidly Back to Olduvai Gorge - 22nd Oct 16
GLD Bleeds Out; Weekly Gold Update - 22nd Oct 16
Stock Market Investment Success Through the “Investment Rule of 72” - 21st Oct 16
The Final Bottom in Gold - WHEN - 21st Oct 16
Gold Green Lights Upleg - 21st Oct 16
Demand for US Mints Silver Eagles has ‘Returned with a Vengeance’ - 21st Oct 16
Central Bankers Can't Stop The Death Blow Of The Post US Election Recession - 21st Oct 16
The Fortune at the Bottom of the Pyramid: Golden Opportunity for Frontier Asia - 21st Oct 16
Have You Taken These 4 Simple Steps to Improve Your Trading? - 21st Oct 16
The Stock Market is an Accident Waiting to Happen - 20th Oct 16
It's Rally Time for Gold and Silver Equities - 20th Oct 16
Cashless Society – Risks Posed By The War On Cash - 20th Oct 16
China's insane Housing Market Will Tumble and Crash in 2017 - 20th Oct 16
Donald Trump Bounces Going into 3rd and Final US Presidential Election Debate - 20th Oct 16
Attention Please: Phase Two of the Gold and Silver Train Now leaving the Station. All Aboard? - 19th Oct 16
How to Successfully Trade a Stock Market Crash - Black Monday October 19th 1987 - 19th Oct 16
Tesla, Apple and Uber Push Lithium Prices Even Higher - 18th Oct 16
Silver, Debt, and Deficits – From an Election Year Perspective - 18th Oct 16
UK Property Market: Slow Growth Does Not Equate To Decline - 18th Oct 16
Trump Election Victory is in Your Power - 18th Oct 16
Stock Market More to Come! - 18th Oct 16
This Past Week in Gold and Silver - 17th Oct 16
A Falling Stock Market Cannot Be Allowed - Financial Repression Is Now “In-Play”! - 17th Oct 16
Commodities, Forex and Stock Market Trend Forecasts - 17th Oct 16
Stock Market Crash..or No Crash? - 17th Oct 16
A perspective on risk rally – Risks abound but Stock Market is Confident - 17th Oct 16
Bank of England Blames Brexit for Sterling Drop Inflation, Masks QE Money Printing Cause - 17th Oct 16
From Piety to Pride to Pity, America's Racial Divide - 17th Oct 16

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

The Power of the Wave Principle

When Gold Bullion Prices Will Rebound

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

By: InvestmentContrarian


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

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.

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 - 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