By MoneyMorning.com.au
I’m just as bullish on gold now, as I was when it was USD$900 an ounce. In this article, I’ll show you the three reasons why.
Plus, I’ll explain why you should add bullion to your portfolio before the New Year…
1. The Chinese can’t get enough of it.
They’re the biggest producers of gold globally, and also the biggest importers. The Chinese central bank has been buying the metal. And the government has told 1.1 billion people to stock up as well.
In the last few years shipments of gold from Hong Kong into China have gone parabolic (see chart below). The Chinese are rapidly trying to diversify their assets away from US dollar denominated holdings, and won’t stop any time soon.
China
– the biggest importers in the market are loading up on gold
– the biggest importers in the market are loading up on gold
China imported over 85 tonnes of gold in October. To put this in context, it’s about 40% of what the world’s gold mines produced during that month.
Yet, market commentator, Dennis Gartman recently said because gold didn’t ‘soar’ in response to the Chinese imports in October, this is the ‘end of the bull market’ for gold. Traders follow what he says, and I think his words are probably behind some of the panic selling in gold.
But I don’t know which chart Gartman was looking at… because US dollar denominated gold increased 6% during October. If that isn’t ‘soaring’ I don’t know what is.
2. Central banks have become the big buyers of gold.
Central banks worldwide have been the biggest players in the gold market this year. What they do drives the direction of the gold price. But it’s not the price they pay that matters. It’s the quantity they buy the market notices. When word gets out that a central bank has been buying gold, the gold price goes higher. More importantly, a very clear trend has formed since 2005. As you’ll see in the next chart, the central banks buy more gold each year.
On the left hand side is the number of tonnes bought (or sold) each quarter since 2005. As you can see, central banks sold around 260 tonnes of gold in 2005. Today, they’re buying it back.
Over the last seven years central banks have become firm buyers of gold
For the first half of this year, more than 216 tonnes of gold were gobbled up by central banks. But central bank buying hasn’t finished yet. Thomson Reuters GFMS estimates central banks will have bought about 500 tonnes before the year is over.
In fact, the World Gold Council estimates that central bank buying will take the equivalent of two months’ worth of the entire world’s gold-mine production this year.
3. The global debt crisis will get worse – and increase the demand for gold.
For now, the US Federal Reserve denies that any further money printing will take place.
Should the US Fed print more money, that’s good news for gold holders and buyers! The more money a country prints, the more it dilutes the value of that currency. So the price of real things, like gold – which is measured in US dollars – increases as a result.
The big falls in the gold price are creating opportunities for you to get on board.
This time next year, I’m convinced we’ll look back at December 2011 as one of the great buying opportunities for physical gold.
If you’re a buyer, take your time. Buy physical gold when the price dips.
Early 2012 could be the time to take advantage of the cheap bullion price.
Merry Christmas,
Alex
Editor, Diggers & Drillers
[Ed note: Dr. Alex Cowie has recently revealed his top six stock tips for 2012. If you’d like to discover these tips and take out an obligation-free trial to Diggers & Drillers, click here for details…]
