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

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 rate of 4.8%! (Source: Bureau of Labor Statistics web site, last accessed July 16, 2014.)

And import prices are rising, too. In the first half of 2014, import prices increased by 1.9%—the first increase since 2011. (Source: Bureau of Labor Statistics web site, last accessed July 16, 2014.)

The demand/supply situation for gold bullion is becoming more imbalanced as demand rises and supply declines. After gold bullion prices took a big tumble in 2013, gold miners cut back on their exploration budgets and shut down mines that were not profitable at $1,200-an-ounce gold. This stunted supply, while demand for gold bullion from central banks and investors remained strong.

Finally, the geopolitical events happening in the East (Russia and Ukraine, Israel and Palestine) are deteriorating, not improving.

The prices of major gold stocks, like Goldcorp Inc. (NYSE/GG), Barrick Gold Corporation (NYSE/ABX), and the widely followed gold exchange-traded fund (ETF), Market Vectors Gold Miners ETF (NYSEArca/GDX), are trading at five-year lows. But gold bullion is up about 50% over the same time.

I’m a cautious investor, not a speculator. I might get the same return speculators have gotten the past couple of years with the stock market (especially the tech stocks), but I can’t afford the risk.

I’ve always been a “buy low, sell high” type of guy. My biggest problem has been finding something to buy low. I think I’ve found it this summer of 2014 with gold-related investments.