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

Posts Tagged ‘gold bullion’

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

Why Aren’t Gold Prices Rising?

By for Profit Confidential

Guess Who Just Bought Gold for the 14th Consecutive QuarterThe numbers are in…

In the second quarter of 2014, world central banks bought 117.8 tonnes of gold bullion compared to 92.1 tonnes a year earlier—a jump of 28%. Central banks have been net purchasers of gold bullion for 14 consecutive quarters!

According to the World Gold Council, “Economic and geopolitical events throughout the world are sources of ongoing instability and uncertainty. Such events reinforce the requirement for appropriate risk management by central banks through holding gold reserves for asset diversification.” (Source: “Gold Demand Trends Q2 2014,” World Gold Council web site, August 14, 2014.)

Hog wash, I say. Central banks are buying gold bullion because they are slowly moving away from U.S. dollars as their reserve currency and replacing them with gold bullion.

In the second quarter, Russia purchased 54 tonnes of gold bullion, Kazakhstan purchased seven tonnes, and Tajikistan bought three tonnes. Combined, just these three central banks made up more than 54% of all the official purchases of gold bullion in the second quarter.

You won’t see the central banks of France or Germany buying gold bullion because they already have enough (that’s if Germany can ever get its gold back from the U.S.).

So if demand for gold bullion is rising, as evidenced by central banks buying more, gold coin sales near record highs, and gold demand in India rising again now that the government is easing tariffs on gold imports, the million-dollar question is why aren’t gold prices rising?

There is plenty of discussion on the Internet about gold manipulation and how prices are purposely being kept down. I can’t comment on that, but I … Read More

Where I’d Put My Money Now

By for Profit Confidential

Annual Supply of World Gold ShrinkingAs gold bullion prices declined last year, I said supply would contract as gold miners pulled back on exploration and closed mines that were not profitable at $1,200-an-ounce gold.

For the supply of gold bullion to increase, there needs to be more discoveries. Sadly, the opposite is happening. According to SNL Metals & Mining, gold discoveries have been trending downward. In the 1990s, there were 124 new gold discoveries totaling 1.1 billion ounces of gold bullion. But since 2000, only 605 million ounces of gold bullion in total has been discovered at just 93 discoveries. (Source: Kitco News, July 18, 2014.)

For there to be more gold discoveries, mining companies need to spend more on exploration and that just isn’t happening. In 2013, when gold prices plummeted, major mining companies pulled back on their spending. Furthermore, exploration companies that need funding found it very difficult to get money, so they also pulled back on finding gold.

But gold bullion discoveries aren’t just slowing; the time it takes to start production at a mine is increasing as well. Between 1996 and 2005, it took an average of 11 years to bring a discovery to production. Between 2006 and 2013, this has increased to 18 years. (Source: Ibid.)

With all of this (it being harder to find new gold bullion and it taking too long for production to start once gold is discovered), the supply of world gold bullion is shrinking.

And demand for gold bullion, well, it just keeps rising. Aside from investors buying gold coins and jewelry at near record levels (with India now easing its stiff tariffs on gold … Read More

The Only Thing I Can Find to “Buy Low” These Days

By for Profit Confidential

The Second Half of 2014 What It Looks Like for GoldThe tally as of this morning:

The stock market is up 2.4% so far in 2014 as measured by the Dow Jones Industrial Average, while gold bullion is up 8.1% for the year.

“As an investor, do I get into gold or stocks at this point in the year?”

Well, if you’ve been reading my articles for a while, you know I’m not a fan of stocks right now. I simply believe the stock market has become a Federal Reserve–induced bubble.

And while there has been a lot written about price manipulation in the gold market, and while mighty Goldman Sachs still says the metal is headed lower in price, investors should look at gold bullion right now…that’s both old gold investors (so they can average down their cost) and new gold investors taking their first position.

Here are my reasons why…

In 2013, the Indian central bank and government imposed tariffs and restrictions on the importation of gold bullion into India, as they believed the demand for gold bullion in the country was hurting its national accounts. In the first quarter of this year, India started to ease its gold importation restrictions, and bang, last month, gold bullion imports into the country increased by 65% over June of last year. (Source: Bloomberg, July 16, 2014.) Demand for gold bullion in China, which I’ve documented in these pages, is also very strong.

Inflation, what gold bullion acts as a hedge against, is starting to gain momentum. The Producer Price Index (which tracks changes in the prices producers pay) increased by 0.4% in June from the previous month; that’s an annualized … Read More

What’s Up Three Times More Than Stocks So Far This Year?

By for Profit Confidential

Where Gold Will Trade in the Second Half of 2014Investors who bought gold bullion in early 2014 know it was a great decision. The precious metal has increased 10.2% in price between January and June, while the Dow Jones Industrial Average climbed by just three percent.

So far, so good—and as expected.

Going forward, it will not be surprising to me to see the precious metal outperform the stock market in the second half of the year as well.

Why will this happen?

As demand for gold bullion continues to rise and as supply declines (the exact situation we have today), gold bullion prices will have no option but to rise.

In the table below, I have plotted the production of gold bullion at U.S. mines for the first three months of the year compared to the first three months of 2013. Production at U.S. gold mines is declining month after month.

Production at U.S. Gold Mines, 1Q2013 vs. 1Q2014

Month 2013 Output (in Kg) 2014 Output (in Kg) % Change Year-over-Year
January 18600 18,500 -0.54%
February 17,300 17,100 -1.16%
March 18,700 18,200 -2.67%
Total 54,600 53,800 -1.47%

Data source: U.S. Geological Survey web site, last accessed July 1, 2014

While the chart above only details U.S. gold mining production, gold bullion production across the global economy is declining. Last year, as the yellow metal witnessed a massive sell-off in price, gold mining companies cut back on their exploration and capital expenditures budgets. This is now catching up and derailing production. And I see the situation for supply only getting worse.

Meanwhile, demand for gold bullion keeps rising.

We continue to see significant demand for the precious metal—and not … Read More

The Only Sector I See with a Ten-to-One Return Potential

By for Profit Confidential

Shattering the Myth Behind Interest Rates and GoldWe are hearing more and more about interest rates getting ready to rise. The Federal Reserve itself has said it expects the federal funds rate to increase to 1.5% by the end of next year and to 2.25% by the end of 2016.

Before the Fed came out with its forecast, I was writing about how the Fed will have no choice but to raise interest rates because inflation is rising too quickly.

And I have been reading what clueless reporters and analysts are writing about how gold bullion prices don’t perform well in a high interest rates environment. I want to set the record straight for my readers.

Shattering the myth about the high interest rates, today’s rates are still very low compared to the historical average. In the chart below, you will see the changes in the Federal Reserve’s federal funds rate since 1980.

Effective Federal Funds Rate Chart

Chart courtesy of www.StockCharts.com

Over the past five years, the benchmark interest rate set by the Federal Reserve has all but collapsed to zero. Moving rates to 2.25% by 2016 will have a significant impact on the economy. But at 2.25%, over the long-term, it’s still a very low rate. Prior to the financial crisis of 2008 and 2009, the federal funds rate stood above five percent.

Bringing it back to gold bullion, if you are old like me and remember the early 1980s when interests were very high, you will also remember gold bullion was trading at a then-record high of more than $800.00 an ounce, or about $2,500 in 2014 dollars.

The higher interest rates went then, the higher gold bullion went. … Read More

Why Gold Went Up $50 Yesterday

By for Profit Confidential

Perfect Inflation Storm BrewingWell surprise, surprise, surprise.

Gold bullion rallied just under $50.00 an ounce yesterday…and nobody expected it. (Okay, maybe just me. In a single day yesterday, my portfolio went up by twice the amount the stock market has risen in all of 2014.)

Going through all the major financial web sites, I read story after story yesterday on why gold was rising so fast. They were all wrong; just reporters grabbing at straws, trying to explain something they know very little about.

As I started writing in these pages in 2014, inflation is becoming a real problem in America. Years ago, I started writing about how all this money the Federal Reserve is creating out of thin air would become inflationary. That’s exactly what is starting to happen now.

Why is the Fed starting to pull back on its money printing operation with the goal of being out of the money printing business by the end of this year? Why is the Fed telling us that after keeping interest rates near zero for years, by the end of next year, the federal funds rate will move up to 1.13% and by the end of the following year, it will move to 2.5%?

In my opinion, we are being told this because the powers that be see inflation in the cards, and they are working on trying to curb rapid inflation before it happens. And if there is something gold thrives on, it is inflation.

Even the manipulated government statistics are now pointing to inflation.

The Bureau of Labor Statistics reports prices in the U.S. economy increased by 0.4% in May after … Read More

The New Land of Oz

By for Profit Confidential

When Gold Will Finally BottomYesterday was an amazing day for the markets.

Gold bullion hit a three-month low despite: 1) inflation rising rapidly in North America; and 2) the Chinese buying half of this year’s world gold production.

The stock market was up to a new high despite: 1) corporate insiders selling like mad; 2) corporate earnings growth collapsing; 3) the amount of money investors have borrowed to buy stocks standing at a record high; and 4) the economy stinking.

In the words of Robert Appel, my esteemed colleague, the following best describes what is happening with the markets:

“Time to take those ruby slippers out of the closet because we are definitely on our way to the ‘Wizard of Oz’ show once again. There is a view that the government and its ‘special contractor’ (the Fed) have things under control and we are now at the beginning of the biggest stock bull in history. We don’t buy that theory for a minute but we do acknowledge it exists.

“Those opposing this view—an ever-declining number—suggest that if inflation were defined as it was when the greatest economic minds of our age were still alive—the U.S. economy would be in big trouble. The recent corporate earnings wipeout in the retail sector was one of the most under-reported financial stories of the year.

“Interestingly (this is too bizarre to make up) the only major upside surprise in the retail sector in respect to first quarter earnings reports was Tiffany’s…where they can barely keep up with demand. No surprise for our readers as the ‘gap’ between rich and poor under QE [quantitative easing] has only intensified. QE … Read More

Is Money Really Worth Anything Anymore?

By for Profit Confidential

Inflation Getting Out of ControlThere’s a big problem brewing…one that I started warning about two years ago: food and basic commodities prices are skyrocketing.

In April, the Producer Price Index (PPI), an index that tracks prices paid by producers for commodities, increased by the most in 19 months. The month-over-month change was 0.6%—yes, that is an annualized inflation rate of 7.2%. (Source: Bureau of Labor Statistics web site, last accessed May 20, 2014.)

Generally speaking, the producers (the companies that grow/import the food we eat and make the goods we buy) are “hedged” in the short-term so consumers won’t see a jump in prices right away; consumers will see prices rise in the months ahead.

While some economists are saying food prices are rising because we had a terrible winter and the weather played havoc with harvests around the world, I simply think too much money has been created out of thin air over the past five years, too many dollars are in circulation, the U.S. dollar is falling in value against other world currencies and that is pushing up domestic prices for goods, causing inflation.

This chart illustrates the situation very well. It shows how much currency there is in circulation in the U.S. economy. You can easily see that after 2008, our monetary base exploded.

St. Louis Adjusted Monetary Base Chart

As the chart shows, there is no denying we are experiencing hyper-monetary inflation in the U.S. There’s simply too much money in circulation. (You can thank the Federal Reserve for that.)

Understand this: when inflation increases, your buying power goes down. Today, your dollar is worth less than it was last year, last month, or even last … Read More

Double Bottom in for Gold Prices?

By for Profit Confidential

Gold Bullion Fear Index CollapsesWhile the Federal Reserve has cut back on its money printing program, the fact of the matter is that the “official” U.S. national debt is closing in on $18.0 trillion. The unofficial national debt (when obligations like Social Security, Medicare, Medicaid, welfare, and now Obamacare are taken into consideration) is closer to $200 trillion.

The Japanese national debt just hit one quadrillion yuan.

Many countries in the eurozone are drowning under debt. The European Central Bank recently started talking about printing money to finally get the eurozone out of its mess.

All of this is very well-known to Profit Confidential readers.

Why do I bring this up again today? I’m back focusing on debt because it is becoming more and more apparent that the only way to reduce the record national debt many industrialized countries have accumulated since the Credit Crisis of 2008 is to print even more money.

And the collapse in the volatility of gold bullion prices could be pointing to just that. To see what I’m talking about, take a look at this chart:

Volatility Index - CBOE Gold INDX ChartChart courtesy of www.StockCharts.com

In April of 2013, when the sharp decline in gold bullion prices began, volatility for gold prices was very high. Since then, the volatility index for gold, an index that essentially gauges investors’ fear factor for gold bullion prices, has collapsed.

And when we look at the price chart of gold bullion (see next chart below), we see strong support for the metal just below the $1,200-an-ounce level. This level has been tested twice and on both occasions, gold failed to fall below $1,200. In technical analysis, this is … Read More

Silver Prices to Double from Here?

By for Profit Confidential

Silver  Better Opportunity Than Gold YearIs silver presenting an even greater investment opportunity than gold bullion?

It’s been well documented in these pages that demand for gold bullion is increasing and supply is declining due to lower prices. The silver market is going through the exact same thing.

Last year, the Indian government decided to curb demand for gold bullion in that country by increasing the duty on gold imports. This resulted in a significant decline in gold bullion imports. But what went unsaid was that silver demand skyrocketed as gold bullion demand fell. In 2013, silver imports into India almost tripled to 5,478 tonnes. (Source: Reuters, March 4, 2014.)

Demand for silver is increasing here in the U.S. as well. The table below shows demand for Silver Eagle coins sold at the U.S. Mint in the first four months of each year since 2011.

U.S. MINT SALES OF SILVER EAGLE COINS

Month 2011 2012 2013 2014
January 6,422,000 6,107,000 7,498,000 4,775,000
February 3,240,000 1,490,000 3,368,500 3,750,000
March 2,767,000 2,542,000 3,356,500 5,354,000
April 2,819,000 1,520,000 4,087,000 4,590,500
Total Sold 15,248,000 11,659,000 18,310,000 18,469,500

Data source: U.S. Mint web site, last accessed May 1, 2014

From the table, you can easily see that the demand for silver coins in the first four months of 2013 and 2014 was greater than it was in 2011 and 2012. 2011 was the year silver prices were reaching $50.00 an ounce. In 2012, silver prices were relatively flat. In 2013 and this year, as silver prices declined, we saw more buying of silver coins; silver prices are bringing more buyers.

On the supply side, there are constraints in the … Read More

Why the Cost of Your Breakfast Is Going Up

By for Profit Confidential

Official Inflation Numbers LieCoffee prices are soaring.

As you will see from the chart below, since November of last year, coffee prices have gone up 110%.

And your cereal is going to cost you more, too. Since February, wheat prices have increased more than 22%.

If you like eggs for breakfast, I’ve got more bad news for you; they are rising in price as well. In its April Livestock, Dairy and Poultry Outlook report, the U.S. Department of Agriculture said egg prices were higher by 13% in the New York region in the first quarter of 2014 compared to the first quarter of 2013. (Source: U.S. Department of Agriculture, April 15, 2014.)

 Coffee - Spot Price ChartChart courtesy of www.StockCharts.com

Aside from food, gasoline prices are also moving higher. As the chart below shows, since November, gasoline prices have gone up 20%. Higher gas prices means it costs more to deliver goods to the end user…a signal that goods in general could be rising in price.

Gasoline Unleaded - Spot Price ChartChart courtesy of www.StockCharts.com

But have no fear, dear reader. The government tells us there is no inflation. That’s because the government’s “official” numbers exclude food and energy prices! How ridiculous is that?

Our most recent reader survey concluded our readers believe inflation in the U.S. economy is running at five percent per annum.

And it’s not just prices rising. In many cases, while prices seem to be the same, the actual size of the container is getting smaller. This is a prime example of non-price inflation.

As inflation continues to rise, it will kill the buying power of the average American Joe because incomes in the U.S. economy are … Read More

Dying for Gold? This Man Almost Did

By for Profit Confidential

Four Key Arguments for Owning GoldThe most compelling argument for owning gold bullion I have ever heard…

A 63-year-old businessman went to a doctor complaining he had swallowed a bottle cap in anger after he had a fight with his wife. After a three-hour surgery, the doctors found 14 ounces of gold bullion in the man’s stomach. The police and Customs were called, and the gold recovered was confiscated. (Source: “Gold bars removed from Indian man’s stomach,” BBC News, April 18, 2014.)

This is just one of the many ways smugglers are bringing gold bullion into India. In this particular case, this man was willing to die for gold!

You see, the Indian government has imposed rigorous duties on importing gold bullion into the country. As a result, imports of gold bullion between May of 2013 and November fell more than 88%. In May of 2013, 162,000 kilograms (kg) of gold bullion was imported into India, and by November 2013, it had declined to 19,300 kg. (Source: Ibid.) As the government imposed its high duties, smuggling of the precious metal into the country increased. And as I just told you, people are risking their lives to get the yellow metal into the country.

To recap what I have been writing about gold bullion:

  1. More and more central banks have been buying gold bullion to stabilize their reserves. For years, central banks sold their gold; now they are buying it back.
  2. The decline in gold prices has forced gold miners to cut exploration projects for the simple reason that they need to conserve cash. Less exploration means less supply down the road. Also, there has been
  3. Read More

Cornering the Gold Market: China Close to Buying Half of World Gold Production

By for Profit Confidential

China Demand Gold Approaches Half Annual World ProductionMy long-time readers know I’ve been a gold bullion bull for years—ever since 2002! And whenever gold bullion prices get weak, I just buy more. In fact, last year, when gold bullion prices took it on the chin, I bought more.

I like to buy an investment when it is down and out of favor. And that’s how I look at gold today. When I study the demand/supply equation, I see demand rising (especially from China) and supply decreasing as companies pull back on their exploration budgets because gold prices have come down. Because of this, 2014 production of gold bullion will be less than 2013’s.

In 2013, China bought 1,132 tonnes of the precious metal, making it the biggest buyer of gold in the world. According to the World Gold Council, demand for gold bullion in China will increase by 20% by 2017 to 1,350 tonnes annually. (Source: World Gold Council, April 15, 2014.)

Of interest, Chinese households have savings of $7.5 trillion in bank accounts but only $300-billion worth of gold bullion as savings. (Source: Ibid.) Imagine what would happen if only 10% of household bank savings in China moved towards gold bullion.

According to the U.S. Geological Survey (USGS), total gold world mine production in 2013 was 2,770 tonnes. (Source: U.S. Geological Survey, February 2014.) This means the Chinese are buying 41% of all gold mine production!

While it might not sound right if you own gold, what happened to gold bullion prices last year was actually a blessing in disguise. Yes, it did take the speculators out, but it also gave a chance for long-term investors … Read More

Should You Be Buying More Gold Ahead of the ECB’s Printing Decision?

By for Profit Confidential

The European Central Bank Presents Another Reason to Be Bullish on GoldFrom our recent reader survey, I see our readers are not that concerned about what happens in the eurozone. But there’s a phenomenon occurring there that I believe every investor who is interested in gold bullion should be aware of.

Let me explain…

It’s a known fact that when central banks print more of their paper money, it’s usually bullish for the yellow metal. We saw this after 2009, when the Federal Reserve started to print more paper money; gold bullion prices skyrocketed.

In the eurozone, there continues to be major economic problems in the region. Italy, the third-biggest economic hub in the eurozone, has reported its unemployment rate hit 13% in February—the highest unemployment rate ever recorded in the country. (Source: Reuters, April 1, 2014.)

To help countries like Italy, Greece, Spain, and Portugal with their economic woes, the European Central Bank (ECB) has lowered its benchmark interest rate—but that hasn’t spurred bank lending as bad debts on the books of major eurozone banks keep piling up. Even once-strong eurozone countries like France are under economic scrutiny.

Now, as no surprise, the ECB has started talk about following the same route the Federal Reserve has taken—printing paper money.

At a conference last week, one of the ECB’s Executive Board members, Yves Mersch, said the ECB is ready to turn on its printing presses. The president of the ECB, Mario Draghi, has also said quantitative easing in the region may be needed if inflation in the eurozone continues to remain subdued. (Source: Reuters, April 7, 2014.)

Hence, to the printing presses of the Federal Reserve, the Central Bank … Read More

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