Solid Gold Demand Could Send Gold Prices Significantly Higher
If you are looking for the next big trade, look at gold prices. The yellow precious metal is trading at severely low prices and it may be set to provide massive gains.
As it stands, there’s a gold rush in play, and no one is talking about it. We see consumers, investors, and central banks running to buy the precious metal. In the process, they could send gold prices through the roof.
Consider this: in the second quarter of 2016, central banks purchased 77 tonnes of gold. This amount is down year-over-year, but keep in mind that they have been net buyers of the precious metal for a very long time. (Source: “Gold Demand Trends Q2 2016,” World Gold Council, August 11, 2016.)
The second quarter, of 2016 marked the 22nd consecutive quarter during which central banks purchased gold!
Looking at central banks’ resilience buying, you have to question their motive. They have been buying gold bullion to diversify their portfolio. They see value in it and it wouldn’t be surprising if they buy more.
Pay attention to the exchange-traded funds (ETFs) as well. In 2013, there were major withdrawals of gold at ETFs, and supposedly it caused the panic selling that took gold prices lower that year.
We now see that ETF gold holdings are skyrocketing. In the first half of 2016, we have seen inflows of about 580 tonnes of gold in ETFs and similar investment products. This is a massive improvement compared to previous periods.
In the entire year of 2015, for instance, 98 tonnes of the yellow metal was withdrawn. In the second half of 2014 alone, 133 tonnes of the precious metal was taken out. Go back a little further and you will see bigger outflows.
In addition to all this, we see a surge in mint sales around the world as well.
Take the United States Mint, for example. In the first seven months of 2016, it has sold 539,500 ounces of gold bullion in American Eagle coins. In the same period a year ago, this figure was 443,000. This represents an increase of almost 22% year-over-year. (Source: “Bullion Sales/ Mintage Figures,” United States Mint, last accessed August 16, 2016.)
At the Perth Mint in Australia, we see demand surge as well. In the first seven months of 2016, the mint has sold 249,585 ounces of gold coins. In the same period of 2015, the mint sold 219,736 ounces of gold coins. This represents an increase of 13.6%. (Source: “Perth Mint Gold and Silver Bullion Sales Weaken in July,” CoinNews.net, August 12, 2016.)
Gold Price Outlook Bullish: Must Watch Mining Stocks
Dear reader, you have to realize, there’s a massive disparity in the gold market. The demand is outright surging and the supply is struggling. This is a basic recipe of much higher gold prices.
Year-to-date, gold prices are up roughly 25%, but it’s still nowhere close to where it should be trading.
I will be bold and say this; the fundamentals of the gold market are much better than they were in 2011. I continue to keep the stance that gold prices could surge to 2,000 an ounce — about a 48.15% move from the current level. It wouldn’t be surprising to me if that happens in the next two to three years.
With all this in mind, if you are not looking at mining stocks, you could be making a grave mistake. If the gold price goes to $2,000, mining companies are going to be the biggest beneficiaries.