Gold prices have been trading in a range for more than two months now. Sadly, investors seem to be nervous. They are asking one question: should I ditch the yellow precious metal?
As I see it, gold investors shouldn’t be too discouraged by the price action over the past couple of months whatsoever. In fact, they should be thankful and know there could be much more upside ahead in 2016 and beyond.
Let me explain…
If you are bullish on gold bullion for the long term, you want the prices to go up slow and steady.
We saw a big rally in the first two months of 2015 and over the past two months, prices have been trading sideways. Contrary to popular belief, this is actually good!
Why? Well, when there are spikes and massive moves in prices in a very short period of time, it means speculators are present, rather than there being sustainable buyers. The sideways price action we see in the gold bullion market right now, as I see it, is filtering out those speculators.
I reiterate, don’t be too worried about this.
What I am really excited about is the demand for gold bullion despite the higher prices, especially the demand from buyers who tend to hold gold for the long term—the central banks and consumers.
It almost seems as if there’s a gold rush. Their demand is astonishing, but I guarantee you won’t hear much about it in the mainstream media.
Take the central bank of China as one example. In the first three months of 2016, it purchased 35.14 tonnes of the yellow precious metal. Don’t just pay attention to the number of tonnes it bought, though; pay attention to the fact that it’s consistently buying. (Source: “Changes in World Gold Official Reserves,” World Gold Council, last accessed May 10, 2016.)
The central bank of Russia added close to 46 tonnes of gold bullion to its reserves, too.
And the fourth quarter of 2015 marked the 20th consecutive quarter that central banks purchased gold bullion. It will not be shocking to hear if the first quarter of 2016 was the 21st quarter that central banks were net buyers of gold.
As for consumers, one way to see their demand is by looking at gold sales at mints around the world.
In the first four months of 2015, the U.S. Mint sold twice as much gold bullion in American Eagle coins than it did last year. (Source: “Bullion Sales/ Mintage Figures,” U.S. Mint, last accessed May 10, 2016.)
Other mints around the world are reporting staggering demand figures as well.
Long-Term Gold Price Outlook
I can’t say this enough times: if you are ignoring gold bullion and gold-related investments right now, you could be making a grave mistake.
Gold bullion prices are severely undervalued. The yellow precious metal came under fire for all the wrong reasons a few years back. Now, the market’s fundamentals are different.
I will end with the following forecast: We could be on the cusp of another bull market in gold prices at this time. The yellow precious metal increased roughly 500% in the previous bull run. If we assume this time that we are in for similar returns, then we could easily be seeing $5,000-an-ounce gold. Obviously, time will tell.