If Gold’s a Bad Investment, Why Is This Country Buying 150% More of It?

150114_PC_lombardiI see more negativity towards gold bullion these days than ever before. And the more pessimism I hear and see, the more bullish I get on the precious metal.

After a bull market in gold bullion that lasted 12 straight years, 2013 was the correction year for gold bullion. It was the year that “separated the men from boys,” the investors from the speculators, when it came to gold bullion.

Consumer demand for gold coins continues to accelerate, and central banks around the world continue to be net buyers of the precious metal. Even small countries are getting in on the action. In 2013, Turkey imported 150% more gold bullion than it did in 2012! Turkey imported 302.3 tons of gold bullion in 2013, compared to 120.78 tons in 2012. (Source: Hurriyet Daily, January 3, 2014.)

The mainstream argument against gold bullion is that since there’s economic growth now, you don’t really need the precious metal…there’s no “crisis,” uncertainty, or inflation to send gold bullion prices higher. I don’t buy this argument for a New York minute.

The global economy is in a very fragile state. Major economic hubs are facing issues. China, India, Australia, the eurozone, and the U.S. economy show bleak economic performance. Just look at how bad the U.S. December jobs numbers were. (See “Pathetic December Jobs Numbers Proof 2014 to Be Challenging Year.”)

The third-biggest economy in the world, Japan, after years of money printing, reported an account deficit of 592 billion yen in November 2013—the country’s imports were more than its exports, as imports were up 230% over the same period a year ago. (Source: Ministry of Finance Japan, January 13, 2014.)

Through money printing and the lowering of the value of the yen, the Japanese central bank wanted to increase the country’s exports. It backfired…just like I believe artificially low interest rates and trillions of dollars in new money created here in the U.S. will backfire.

Many small world countries are in trouble. In Denmark, consumer debt has increased to 321% of the disposable income. This means that for every dollar earned, Danish consumers owe $3.21. In Sweden, debt compared to disposable income is around 180%—for every dollar earned, Swedish consumers owe $1.80. (Source: Bloomberg, January 14, 2014.) And Canada’s consumer debt level is at a record high.

On the monetary side, we have too much new money printed, too much debt among consumers. Economically, we are entering a period of slow growth for world economies (which will likely result in more money printing). Fundamentally, we have consumers and central banks retching up their gold buying.

The stocks of senior gold producing companies with lost cost production and proven reserves are selling at bargain basement prices. I believe we will one day look back at 2013 and say, “Boy, were gold stocks ever a bargain back then.”