Huge Upside for Gold Prices
Gold bullion remains the best performing asset so far in 2016. Very few expected the precious metal to increase this much going into the new year, but don’t be shocked if gold prices continue to go higher.
Know that there are forces at play in the gold bullion market and that they could send the precious metal prices soaring. In fact, I consider them “X factors.” We are currently paying attention to three things: India’s gold bullion appetite, central banks’ gold-buying spree, and investors’ demand for the precious metal surging.
To give you some perspective on how extreme gold bullion demand is outside India, consider the import figures in January of this year. The country imported $2.91 billion worth of gold bullion that month, while in January of last year, just $1.57 billion worth of gold bullion was imported. This represents an increase of over 85% year over year. (Source: “Quick Estimates For Selected Major Commodities For January, 2016,” India Ministry of Commerce and Industry web site, last accessed March 9, 2016.)
Don’t believe for a second that January of 2016 was the only month with big gold import figures. Throughout 2015, we saw sold gold import figures from India.
As far as the central banks are concerned, they are buying gold in large quantities. Keep in mind that they have very deep pockets and really need gold bullion to diversify their reserves. In 2015, they purchased 590 tonnes of the yellow metal, higher than the previous year, and have been buyers since 2009, marking one of the longest gold bullion buying sprees on record.
You must understand that central banks could change the dynamics of the gold market. I expect them to continue to not only buy more, but also do so quietly. Pay attention to smaller central banks; they need the precious metal. Investors are rushing to buy gold bullion as well.
I closely follow the sales of precious metal at mints around the world. Take the U.S. Mint as one example. In the first two months of 2015, it sold 99,500 ounces of gold in American Eagle coins; in 2016, this figure was 207,500 ounces. This represents an increase of close to 110% year-over-year. (Source: U.S. Mint, last accessed March 9, 2016.)
That’s not all, as we can see that gold-backed exchange-traded funds (ETFs) are gaining popularity as well. My colleague Palwasha Saaim wrote about this topic recently in the article, “Gold Price: This 1 Indicator Says Gold Bullion Prices Could Skyrocket.”
Gold Prices Outlook for 2016 and Beyond
My long-term readers know very well that I have been bullish on gold bullion for a while. I was calling it an opportunity of a lifetime when others were calling it the equivalent of a pet rock. My stance on it hasn’t changed; I remain bullish.
Here’s what I want my readers to know as well: there could be more upside. You could be making a major mistake by overlooking the precious yellow metal.
I continue to favor gold mining companies over gold bullion, as miners provide leveraged returns. For instance, I have been looking at a few miners that have already provided roughly four-percent gain for every one percent increase in gold prices.