Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Gold Bullion

Gold bullion is referred to as “physical gold;” it’s pure gold (99.9%) that can be bought or sold for investment purposes. Investors can buy gold bullion as bars or coins through banks or bullion dealers, but they must pay a certain premium over the spot price. Investors may hold gold bullion for many purposes including the protection of their wealth.

Since 2002, there has been a significant rise in gold prices and, as a result; those who bought gold bullion bars and coins have done really well.

Going forward, the prospects of holding gold bullion look great. There’s a significant amount of demand emerging from the central banks, which, to begin with, were actually against holding the yellow metal. There’s also huge demand from consumers around the globe, but consumers from India and China are at the forefront of it. They are buying. If the demand remains as it has been, then the price of gold bullion could rise significantly, and those who are buying now will see solid returns on their investments.

India Buying 450% More Gold?

By for Profit Confidential

How Can Gold Prices Possibly Go DownThe demand and supply situation for gold bullion, something I’ve often talked about in these pages, has taken a new course…one very favorable to gold bulls like me.

Gold buying in India is up 450% in the first nine months of 2014 compared to the first nine months of 2013. (Source: Government of India, October 14, 2014.) The jump in gold bullion buying in India is related to the easing of restrictions on gold imports into the country by the Indian government in 2014.

The buying of gold bullion in China continues to be strong. And world central banks are increasing their gold reserves, too.

In the chart below, I’ve compared the gold holdings of various central banks now compared to their gold reserves in 2011.

Three-Year Change in Gold Reserves of Five Countries

Country Gold Holdings in October 2011 (in tonnes) Gold Holdings in October 2014 (in tonnes) % Change
Russia 841.1 1112.5 +32.27%
Turkey 116.1 511.7 +340.74%
Kazakhstan 67.3 181.9 +170.28%
Korea 39.4 104.4 +164.97%
The Philippines 147.8 194.4 +31.53%

Data source: World Gold Council web site, last accessed October 23, 2014

Mind you, the central banks mentioned in the table above are just a few of the many that have posted a significant increase in their gold bullion reserves. Unfortunately, many countries (like China) do not regularly release data on their gold purchases.

Meanwhile, the supply side of the gold bullion equation is bleak.

As I wrote in 2013 when gold bullion prices got whacked, the lower gold prices go, the more mines taken off-stream as gold mining companies close operations where production costs come in at … Read More

About That Referendum in Switzerland…

By for Profit Confidential

Demand Shock for Gold Market Coming SoonOn November 30, Switzerland’s citizens will cast a very critical vote.

Through a referendum, they will vote for or against the Swiss National Bank increasing its gold bullion reserves to 20%, the central bank halting the selling of gold, and the storing of gold bullion in the country. (Source: Kitco News, September 30, 2014.)

If the results are in favor of the referendum, it will mean Switzerland’s central bank will be forced to buy a significant amount of gold bullion.

According to the most recent data from the World Gold Council, Switzerland has 1,040 tonnes of gold bullion in its reserves, equal to only 7.8% of its total reserves. (Source: “World Official Gold Holdings,” World Gold Council web site, last accessed October 16, 2014.) To bring its gold bullion holdings to 20% of total reserves, the central bank of Switzerland will have to buy 1,600 more tonnes of gold, or about 60% of all global mine output this year. Will the gold market be able to handle this kind of demand shock? I highly doubt it.

And if the central bank of Switzerland stops selling gold, a significant amount of gold will come off the market.

Finally, the vote on gold being stored in the country is just another example of the increasing appetite for the precious metal. We saw this phenomenon happen in Germany not too long ago when the country asked the U.S. for its gold back (the U.S. was “storing” it), but Germany was told it would have to wait seven years to get it.

The big picture: Since 2009, central banks around the world have bought … Read More

Gold Mining Companies Selling for Pennies on the Dollar

By for Profit Confidential

Gold Stocks The Most Beaten-Up Sector of the Market Finally Bottomed OutThe fundamentals for higher gold bullion prices continue to impress. The table below illustrates the output from U.S. mines in the first six months of 2014 compared to the first six months of 2013.

In the below chart, we quickly see that since March of 2014, production of the precious metal has been quickly declining. Meanwhile, on the demand side of the equation, we see increased demand for gold bullion from the East—especially from China.

China recently launched a gold bullion market on the Shanghai Gold Exchange (SGE) for international investors. The goal of this exchange is to gain more control over the price of the precious metal in yuan (the official currency of China). China wants to have price control over gold bullion, just like the West does with their daily settings in New York and London.

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U.S. Gold Mine Output, First Six Months of 2014 & 2013

Month 2014 Output (Kilograms) 2013 Output (Kilograms) % Change
January 17,800 18,500 -3.78%
February 16,400 17,200 -4.65%
March 17,500 18,700 -6.42%
April 16,500 17,900 -7.82%
May 17,200 18,800 -8.51%
June 17,700 19,400 -8.76%
Total 103,100 110,500 -6.70%

Data source: U.S. Geological Survey web site, last accessed October 7, 2014.

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For seven years in a row, the SGE has been the top spot for gold bullion trading in the global economy. In 2013, the volume at the exchange reached 11,600 tons.

Quality gold bullion mining companies continue to offer significant value. Some of the most well-known miners are selling for pennies on the dollar. Goldcorp Inc. (NYSE/GG), selling for $23.00 a share for a market cap of just over $18.5 … Read More

A Rational Look at Silver

By for Profit Confidential

Rational Look at SilverAs silver prices started to decline last year, silver mining companies halted projects where costs were too high in relation to the new reality of silver prices.

According to a report produced for the Silver Institute and created by Thomson Reuters GFMS, in 2013, the silver supply fell to 985.1 million ounces, down from 1,005.3 million ounces a year earlier—a two-percent drop in production. (Source: The Silver Institute web site, last accessed October 1, 2014.)

But demand for silver was increasing over the same period.

While silver prices were declining (from the same report), demand for silver in 2013 increased 13% to 1,081 million ounces, compared to 954 million ounces in 2012. Demand for silver coins and bars jumped 76% in 2013 over 2012! As silver prices fell, investors bought more silver.

The chart below compares gold bullion prices (golden line) and silver prices (grey line) over the last year.

Gold - Spot Price Chart

Chart courtesy of www.StockCharts.com

Looking at this chart, you will make one key observation: while gold bullion prices still remain above their December 2013 lows, silver prices have broken below their 2013 lows and are down more than 10% year-to-date.

Looking at this, I ask: has anything changed for silver? The only change is that the media is telling us the economy is doing better; hence, investors are not buying into the precious metal sector. But the reality of the situation is that the supply of silver in the market is declining, while demand is rising by the double-digits.

Pessimism towards the “poor man’s gold” has gone too far. In fact, I’m expecting silver to provide investors with a better … Read More

A Rational Look at Gold

By for Profit Confidential

Rational Look at GoldThe fundamentals that drive gold prices higher are in full force and improving. Central banks are buying more of the precious metal (to add to their reserves), while countries that are known to be big consumers of gold bullion post increased demand.

According to the India Bullion & Jewellers’ Association, India’s monthly gold bullion imports are expected to rise by as much as 50% in the coming few months—in the range of 70 tonnes to 75 tonnes per month compared to an average of 50 tonnes to 60 tonnes now. (Source: Reuters, September 18, 2014.) This is mainly due to the festival/wedding season fast approaching in India.

If India continues to import 70 tonnes of gold bullion each month, then the total imports just to India will be 31% of all world gold mine production (based on 2,700 tons in annual mine production).

India used to be the biggest importer of gold bullion until China took over as the biggest importer of the precious metal two years ago. And demand for gold in China remains strong as well.

But while demand for the precious metal is rising, production is declining.

In the first five months of 2014, U.S. mine production was 85,400 kilograms (kg), down four percent from the 89,200 kg of gold bullion produced in the first five months of 2013. (Source: U.S. Geological Survey, last accessed September 22, 2014.) As I have written before, lower gold prices have caused gold companies to close mines where production made sense at $1,600 an ounce gold, but not at $1,200 an ounce gold.

While I won’t delve into all the talk … Read More

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