Precious Metals Investments

saving_08252015Today’s news makes the case for why all investors should keep at least ten percent of the portfolio in precious metals. After stock market declines this week, we reflect on how quickly the markets for stocks, bonds, and other financial assets can change. The ability to “buy low and sell high” is every investor’s dream, but averaging the cost basis of gold and silver makes long-term financial sense.

It is true that precious metals prices soar during moments of panic. People worry about China’s economy slowing down or the U.S. stock markets’ consolidating. Either of these worries should not worry anyone. China’s economy has continued to grow at a remarkable rate for years and the U.S. stock market typically rests every five years or so. A bear market is overdue.

Interest Rates and Inflation

Concerns about the yield curve, interest rates and inflation are everywhere. Investment in almost any asset benefits from low rates with the exception of income investing and inflation-sensitive investments. Central banks around the world have recently indicated that the cost of money will start to rise next month through the end of the year.
Rates will rise with inflation. Income investors and fixed income asset managers are happy. For the past few years, real returns in fixed income have been negative or negligible. Investors are rebalancing portfolios in earnest. The stock market’s “nowhere to go but up” premise is unsustainable.

None of this information is new. None of the information should inspire panic. Markets rise and fall with supply and demand. A long-term and conservative approach to investing in gold and silver, stocks, bonds, and real estate benefits investors. Over the long-term, investors’ assets tend to rise in price.

Gold Trading

An uncertain global economy tends to favor investment in gold. Gold is now up seven percent from five-year lows. Daily volume of futures contracts have approximately doubled the number of daily average. China’s currency devaluation or Greece’s possible Eurozone departure are certainly triggers. However, it’s also smart investing to buy when prices are low and the outlook for future price appreciation is high.

The Commodity Futures Trading Commission (CFTC) data, recorded since 2006, reflects the turnaround of bearish sentiment in precious metals. Short positions, or bets placed that gold’s current price will decline in future months, were covered at record rates this month. Long purchases, reflecting buyer sentiment that gold prices will rise, simultaneously increased. So-called “fast money” of hedge funds committed to these contracts shows that professional investors are bullish about a rising gold price.

Sovereign Gold Acquisitions

According to the World Gold Council, European countries’ appetite for gold increased over the past three months. In contrast, global market demand declined 12 percent to six-year lows. German buying of gold bars and coins increased by 24 percent in Q2 2015. Austria and Switzerland’s buying closely followed that of Germany.
Analysts at the World Gold Council believe that Greece’s possible Eurozone exit prompted the rise in retail investors’ acquisition of gold. The European market outpaced India’s lead position in the purchase of physical gold and coins.

Over the prior 18 months, Russia has continued to buy gold. In fact, Russia’s gold purchases are thought to represent 13 percent of sovereign reserves. Russian government has increased its gold stores by 300 percent in the past ten years.
The head of the Russian central bank announced that it will continue to buy more gold over the next few years. Analysis of the World Gold Council believe that the country views gold as an essential reserve component.

European Central Bank

Individual investors in Europe seem concerned about the European Central Bank’s money policy. The ECB’s announcement that it will begin a €1.1 trillion bond repurchase program in Q1 2016 may have stimulated the purchase of gold.
Gold is often considered as a hedge against inflation and wealth purchasing power. The ECB bond repurchase program is likely to cause the euro currency to decline against other currencies on foreign exchange markets.

Posted in Economy, Gold, Investment, Precious Metals | Leave a comment

Gold’s Upward Trend Comes to an End

gold-163519_640If you’re looking forward to investing in gold, you might be pleased to know that it is set to post a weekly gain once again. However, gold fell on Friday as the dollar evened out. The price of gold had jumped on Thursday to $1,219.40 in response to attacks in Yemen. This was the highest it had been since March 2. Spot gold lightened .5% to $1,198/ounce, while U.S. gold futures for April sat at $1,199.80/ounce. The price of gold typically responds to conflict, rising in the face of strife because of its inherent stability. As of Friday gold was close to finishing the week up just over 1 percent. This has been gold’s longest positive stretch since August of 2012. There are three other reasons that the price of gold has been so high as of late. One is the uncertainty of the Federal Reserve’s monetary policy. As they move towards normalizing their monetary policy and raising interest rates, the price of gold fluctuates. If the interest rate remains low the value of gold increases. But It is anticipated that an increase in interest rate for gold might lead to less demand for investing in gold. Another reason the price of gold had been remaining high was the questionable future of the Euro because of quantitative easing of the European Central Bank. Once again people tend to plan for a future in which paper money takes a back seat to gold. Finally, the Chinese economy is encountering problems, which in turn effects the global economy, causing people to feel bullish toward the gold market. Some are still cautious over the increase in gold price, as the world’s biggest gold-backed exchange traded fund SPDR Gold Trust recorded a loss of nearly 6 tonnes to 737.24 on Thursday, the lowest level since January.

It is anticipated that with an increase in U.S. interest rates expected soon, the price of gold will continue to fall; this isn’t an unreasonable supposition since economic and financial improvements reduce the demand for gold and other “safety nets.” However, some economists argue that more than 40% of the demand for gold last year came from Asia, making United States monetary policy unimportant in the price of gold. They believe that the Asian market demand will pick up at some point this year, reflecting numbers that repeat those of last year. The process for pricing gold was forever altered on March 19. For the first time in 96 years gold prices weren’t set by a select few sitting in a quiet back room, but by an online auction that anyone could participate in. It is hard to tell what impact the process change will have in regards to the going rate of gold, but since 2011 gold prices have fallen 37%, even as those investing in gold notice the price still increasing. This seems to indicate that despite global finances, the U.S. economy is growing stronger. As this trend continues, gold’s upward trend will certainly slow down.

Posted in Gold | Comments Off

Reading Signs on China’s Metals Trade

A381C2C35C9157F6B67FD07D5A200AE1In 2015, Chinese influence on industrial metal prices will be more important than ever before. Yes, they have been a powerhouse in the sector for quite some time, but what has changed over the last couple of years is their surging output after years of production capacity growth. And of the industrial metals China is involved with, copper is imported on a routine basis and plays a substantial role in their metals marketplace.

Through a skewed perspective, copper trade figures for China might be seen as a sore on the country’s manufacturing health. That being said, copper currently occupies one end on a shifting spectrum of malleable price signals regarding China’s trading practices with metals. So what Chinese trade themes are worth watching this year?

Threatening Exports

During the second half of last year, Chinese exports of base metals took off due in part to the Qingdao port scandal, which involved numerous vows around metal as collateral in China’s shadow banking sector. The conclusive effect was the flight of collateral metal from Chinese bonded warehouses to London Metal Exchange warehouses for safe-haven storage.

China flirts with the classification of products and minimally transformed metal, and uses such exports as a safety valve for surplus while raising red flags for the outside market. Their export flow of “products” soared by 20 percent to 3.67 million tons last year, and by December, reached a record high of 492,000 tons. But in January and February, exports dropped back to 379,000 tons, which are historically high and hint towards an upward trend.

The Complexity of Copper

China is continually a front-runner with any and all forms of copper imports. Their manufacturing demand drives the copper market year in and year out. Typical buyer behavior and demand for copper, both commercial and state, sees the metal as collateral. Imports on refined metals to China totaled 300,000 tons in January, and look to be slowing in February to continue on with their five-month low.

Of course, the post-Qingdao crackdown on collateral financing and buyer fallout from annual to spot contracts have the most dramatic impact on the current situation with copper. But along the way, China’s copper trade profile switch from refined metal to raw materials stirred the pot even more. All three trade segments for China with copper including refined, scrap, and concentrates will have a dramatic influence on the market in its entirety.

Posted in Copper, Economy, Imports/Exports, Investment | Comments Off