Wrong Question About Gold?
By Staff News & Analysis - July 09, 2013

Gold set to shine again in recovery from worst quarterly drop in 113 years … Could there be a ray of light in sight for the goldbugs? Those with a bullish view on the metal have certainly had that faith challenged in recent months. Gold posted its worst quarterly performance in more than a century for the three months to the end of July, analysts at Macquarie calculate. Specifically, the metal ended the second quarter of 2013 at $1,192 (£782) an ounce, its lowest since August 2010 and representing a fall of more than 25pc below its level at the start of the quarter. But now analysts are starting to suggest that the gold price may be bottoming out, or at least be close to that point. – UK Telegraph

Dominant Social Theme: We just need to know which way this investment is headed.

Free-Market Analysis: For us, asking the direction of gold prices relative to the dollar in the immediate future is perhaps the wrong question.

The right question to ask for many is probably whether one has an investment plan – or even a survivalist strategy – and whether it includes gold.

It probably should include gold, or silver, or both because, historically speaking, gold and silver have offered various benefits during tough times. And times for many are surely tough.

If one cannot put aside a little gold, think about a little silver within a larger approach to savings. That's simple enough.

Obsessing over the value of one's retirement is a surefire way of increasing personal and familial agitation. Here's more from the article:

Outflows from exchange traded funds (ETFs) have started to ease, but the gold price still remains near lows at $1,214 an ounce. The negative sentiment has been justified, analysts acknowledge.

But part of their reasoning is simply that the fall — representing the worst quarterly price performance for gold since at least the year 1900 — has been so steep that the tide has to turn.

"A more hawkish Fed, weaker gold currencies and poor supply and demand dynamics largely justify this [market] pessimism, but so extreme has the price move been, we're tempering our bearishness," says the Macquarie team.

It is a view that is being repeated in several quarters of the City. "While we see no imminent trigger to bring new buyers into the market sustainably, positioning would suggest downside risks to gold are increasingly limited in the short run," say analysts at Bank of America Merrill Lynch.

They stress that they continue to see headwinds for the metal, but point to supporting factors such as higher demand for the metal in physical form from emerging markets.

Their charts show that China's identifiable gold demand hit a record high in the first quarter of this year at more than 1,100 tonnes, much of it due to the liberalisation of the country's gold market, but also to its inhabitants' rising wealth and spending power.

Indeed, they argue that investors are set to lose their clout over the metal in the medium term, as more affluent emerging markets boost their gold purchases. In line with that, the team believes the metal's price is about to stabilise, and predicts that it will average $1,478 an ounce this year, and $1,563 an ounce in the next.

This may be encouraging to some gold bugs but really it should be somewhat besides the point for most. One can hold gold and silver as investments but more likely, one ought to think of precious metals as an insurance against other kinds of financial collapses.

And financial collapses do happen. These are volatile times for most people. Viewing equity and debt markets from an investment perspective certainly makes sense, but why take a similar stance when it comes to gold?

Buy it and forget it. The idea of coming in at the top or bottom is probably less important than having some of it in your portfolio. Once you've done that, you can return to analyzing other investments and worrying about entry and exits strategies.

After Thoughts

Keep it simple when it comes to investing in precious metals.

Posted in Gold & Silver, STAFF NEWS & ANALYSIS
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