Gold Price Decline: An Opportunity for Big Rewards

Gold Price DeclineAs gold prices dropped, we saw a significant amount of buying activity. It appears the low metal prices didn’t really matter to buyers.

Since 2013, whenever the yellow metal prices dropped, we were told that the buyers will eventually run out. This time around, we heard the same thing again.

Between mid-June and now, the precious metal prices have declined roughly nine percent. Did the buyers run away? Saying the least, those who said buyers will exit were outright wrong.

Gold Price Chart

Chart Courtesy of Stockcharts.com

Gold Price Decline Encourages Buying

To provide some perspective, consider this; in June, the U.S. Mint sold 76,000 ounces of gold in American Eagle coins and 21,000 ounces of gold in American Buffalo Bullion. In just the previous month (May), the Mint sold just 21,500 in American Eagle coins, and 9,500 ounces of American Buffalo Bullion. This represents an increase of 253% and 126% in each of the coin sales, respectively. (Source: U.S. Mint, last accessed July 27, 2015.)

July isn’t done yet; at the time of writing, the U.S. Mint had already sold 143,000 ounces of gold in American Eagle coins—88.1% higher than June’s figures, and the most since April of 2013!

I don’t know how anyone can look at this and say the buyers will run out. They are rushing in as the prices are going down.

Mind you, central banks are buying, too.

In the month of June, the central bank of Russia purchased $350 million worth of gold. (Source: Market Watch, July 22, 2015.) If we assume that the average price of gold in the month was $1,150, then the central bank purchased roughly over 300,000 ounces of the yellow metal for its reserves.

Central banks are considered to be conservative investors. If they are buying now, are they seeing any value?

Also Read: Gold Price Collapse; Why It Happened, What It Means

What Investors Should Do

I have said it before and I say it again; the decline in prices hasn’t changed my opinion.

Just look at the long-term chart of gold prices below:

Gold-Spot Price Chart

Chart Courtesy of Stockcharts.com

Since 2001, when gold prices really started to take off, the yellow metal was up roughly 300%. You can’t really say this about the stock market. For instance, the Dow Jones Industrial Average in the same period increased just about 75%.

Investors should be focused on the long-term, and not be spooked by the recent decline.

You must keep the basic fundamentals in mind when looking at the gold market; the supply and demand. Currently, both of these factors are aligning in favor of the bulls, and not the bears. Know this; as the price declines, producers have less incentive to produce or they can’t produce at all. With demand increasing, economics 101 suggests higher prices ahead.

I will be bold here and say that the downside potential on gold is very little while the upside potential is huge. Investors who are paying attention to exchange traded funds (ETFs) that hold gold bullion, or even those that track gold miners, are going to be very happy with their returns in a few years from today.

Investors: This Could Send Gold Prices Soaring in 2015