From last Friday to Monday of this week, gold bullion prices fell from about $1,550 an ounce to as low as $1,350—a decline of more than $200.00 dollars, or almost 13%.
The financial media tells us the reasons for the sell-off are many; some are saying gold bullion prices declined because Cyprus was asked to sell its gold to pay its bills, while others are saying the bull run in gold bullion is over altogether.
Just like other commodities, there are human and psychological emotions present when it comes to gold bullion trading. The metal isn’t immune to panic selling. But what still holds true, regardless of the rush to sell, is that demand for gold bullion is still very present; the fundamentals haven’t changed.
Central banks are buying with two hands. As I have been harping on about in these pages, central banks will continue to be major buyers. Central banks from countries like Russia are adding record amounts of gold bullion to their reserves. As a whole, central banks purchased the largest amount of gold in 2012 since 1964. But even with all this gold buying, countries like China, India, and Japan still don’t hold as much gold bullion as the United States, Germany, France, and Italy.
Consumer investment demand for gold is robust as well. Sales of American Eagle gold bullion coins from the U.S. Mint are booming. In April 2012, the U.S. Mint sold 20,000 ounces of gold bullion in coins. So far in April of this year, the amount of gold bullion coins sold has reached 50,500 ounces—and the month hasn’t even ended yet! (Source: United States Mint web site, last accessed April 16, 2013.)
Meanwhile, central banks around the world are still printing more paper money. To see this in action, we don’t really have to go far. The Federal Reserve is creating $85.0 billion a month in new paper money and is using the newly created money to purchase government bonds and mortgage-backed securities (MBS). As a result of all this money printing, inflationary pressures are building up. The more central banks print, the brighter the future will be for gold bullion.
Above all, it seems bears who are fleeing gold bullion are forgetting the most important reason for its existence. Gold stores value, unlike the fiat currencies printed by central banks. Look at what happened to the value of the U.S. dollar. A $1.00 item bought in 1970 would cost you $5.98 today. (Source: Bureau of Labor Statistics web site, last accessed April 16, 2013.)
Dear reader, the price decline hasn’t changed my opinion toward gold bullion prices. I am still bullish and continue to believe the yellow metal has a great future. The pullback in gold bullion prices is normal after such a long bull market, and I am seeing this as a buying opportunity.
Where the Market Stands; Where It’s Headed:
I believe the stock market is overvalued and overbought. The stock market is out of sync with the economy. The market is putting in a top that could last for years to come.
What He Said:
“As a reader, you’re aware I’m not a Greenspan fan. In the years that lie ahead, I believe we (and our children) may pay dearly for the debt bubble Greenspan created during his tenure as head of the U.S. Federal Reserve.” Michael Lombardi in Profit Confidential, March 20, 2006. Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.