Author Topic: Is it ok to buy and invest in actual gold? (Read 13561 times)

AMARANTH · « **Reply #75 on:** Jul 15, 2012, 10:19 AM »

Does Central-Bank Gold-Buying Signal the Top Is Near?

By Rain - Posted on 14 July 2012

Doug Casey told me in January, "The only thing that scares me is that central banks are buying a lot of gold; they're historically contrary indicators." When it comes to buying gold, central banks have such a poor timing record that they're frequently joked about as a contrary indicator.

We dislike referring to tonnes of gold instead of ounces. Gold is priced by the ounce. But certain market players, especially central banks, report gold transactions in tonnes. One metric ton (tonne) equals 32,150.7 troy ounces.

Recently, they have been buying, quite literally, tonnes of it. Consider the following:
Net central-bank purchases in 2011 exceeded 455 tonnes. This was only the second increase since 1988 (the first in 2010) and the largest since 1964.
Turkey has added over 123 tonnes since last October, buying 29.7 tonnes in April alone.
Mexico has purchased over 100 tonnes since February 2011.
The Philippines added 32 tonnes in March, its second-largest monthly purchase ever. Largely under the radar is the fact that it's buying some of its local production.
Russia continues buying, adding 15.5 tonnes in May. Its total reserves now stand at 911.3 tonnes, the highest level since 1993.
Thailand has raised its holdings by more than 80% since mid-2010.
South Korea has bought 40 tonnes since May 2009, an increase of 180%.
The World Gold Council (WGC) reported that central-bank purchases totaled 80.8 tonnes in Q1 2012, about 7% of global demand.
Over the past 12 months, net purchases have averaged almost 20% of total annual supply.

Central banks have added a net of 1,290 tonnes since the fourth quarter of 2008. This total excludes China and other nations that don't regularly report their activity, as well as countries that have been surreptitiously buying their own production.

That's a lot of gold buying. One has to wonder whether so much buying may in fact signal a top for gold. After all, a number of prominent analysts have claimed for some time that gold is in a bubble and that it's all downhill from here.

Not so fast. Like many mainstream reports, looking at the short-term picture usually leads to erroneous conclusions. Let's put central-bank purchases into historical perspective.

In spite of the recent activity, world central-bank holdings are far below what they were in 1980. Clearly, a few years of net buying does not a bubble make.

The difference is greater than you might realize. Consider that since 1980…
The global population has grown 55%
Worldwide gold supply has grown 120%
Foreign-exchange holdings have increased 650% since 1995, and now total $10.4 trillion.

It seems rather obvious that a lot more "catch-up" buying is needed before we start talking about a top for gold on this basis.

Meanwhile, we think the trend of central-bank gold buying will continue. It's not hard to see why: central bankers around the world know what it must ultimately mean to run the printing presses the way the US has since 2008, even if price inflation is not immediately obvious. It's no surprise that they want to hedge their bets, moving more reserves into something with actual value... something that can't be debased with a few keystrokes. The US dollar has been the world's reserve currency since WWII, and that's beginning to change – the movement into gold is just one facet of that change.

The entire world may indeed be beginning to understand that it's operating on a fiat currency system backed by nothing. At the same time, the sovereign debt crisis in the Eurozone is intensifying, and some countries have succeeded in inflating their currencies faster than the Fed has inflated the USD. It doesn't take Nostradamus to read this writing on the wall… and while the world's central bankers can lie to the public, they themselves know how bad things are.

In fact, the WGC is so confident that central banks will continue to buy gold that it's changed its reporting structure: it's added "official sector purchases" as a new element of gold demand, while eliminating "official sector sales" as a negative supply factor.

Of course, gold will someday top, and Doug Casey believes a bubble in gold and related equities is highly likely at some point, courtesy of the trillions more currency units governments will create in a desperate (and ultimately unsuccessful) attempt to stave off the Greater Depression.

But we're nowhere near that point. There's a long way to go before we start legitimately using the "B word" (bubble) or "S word" (sell).

In the meantime, I suggest using the "B word" (buy) or "A word" (accumulate) to make your decisions about gold.

This trend shift by central banks around the world is just one of several indicators that the global economy is increasingly politicized. For investors, this means that extra diligence and agility are needed, in order to avoid getting crushed by these changes.

Sheridzma · « **Reply #76 on:** Jul 23, 2012, 08:22 AM »

It has been done. Russia has added another 6.2 tonnes of gold in its gold reserves, accumulating to the total of 836.3 tonnes, trailing behind China's hunger to keep more gold at hand. Apparently, although gold has been tracking the performance of the euros for sometime, this good news certainly boosted and triggered the safe-haven appeal of gold amid the eurozone crisis.

naya · « **Reply #77 on:** Jul 23, 2012, 01:33 PM »

Last week, I brought 2 gold necklaces and 2 bracelets to a bank's jewelry pawnshop (Jewelry Loan ang tawag nila haha, 1% interest charge if you have at least 100k deposited with them), all 21-carat and a total weight of 53.6 grams. After testing the pieces, the lady said she can loan me 98k. I was delighted because the highest I could borrow in 2009 using the 4 pieces was 27k.

May gamit din pala itong mga anik-anik na ito na inuwi ng husband ko from KSA from 1998 to 2000, kasi hindi naman ako mahilig magsuot. Minsan na sinubukan kong magsuot eh nakita ko nga sa salamin yong sinasabi nilang parang merong hepatitis hehe...

If the 98k appraisal represents 1/3 or 2/3 of the current value, then okay pala ang gold indeed...

By the way, hindi ko hiniram yong 98k, mahirap bayaran.... I pawned the 2 smallest pieces and borrowed just enough to complete my daughter's tuition fee na due, kasi yong budget ay napunta sa iba, including family and relatives na tinulungan...

Sheridzma · « **Reply #78 on:** Jul 23, 2012, 02:10 PM »

That's good news Ms. Naya. Gold will always appreciate in value. Even if there are corrections in the market, there is no way for the gold price to go but up. Seriously considering that gold supplies are diminishing all over the world, and that since gold cannot be manufactured or grown to be harvested, you are looking for a possibilityfor gold to shoot up.

allanmm13 · « **Reply #79 on:** Jul 23, 2012, 06:41 PM »

Quote from: Sheridzma on Jul 23, 2012, 02:10 PM

since gold cannot be manufactured or grown to be harvested, you are looking for a possibility for gold to shoot up.

Between Gold and Farmland, both are good hedge daw against inflation. Supply is limited and "might" go up due to unlimited printing of paper money of government.

Problem with gold, as a hard asset, walang cashflow.
So will go for its alternative, farmland, acts like as precious metals with cashflow while growing commodities on it (rice)

Sheridzma · « **Reply #80 on:** Jul 24, 2012, 07:54 AM »

true. farmlands can be used as hedge and as one of the basic needs naman there will always be demand for it. However, in farmlands, there are things to be considered like:
1. fortuitous events that could damage the harvest products and the farmland area, 2. lack of demand due to inflation and surmounting competitions,
3. expensive labor costs that might have huge cutbacks on your gross profit,
4. immovability of the investment, hence, its inconvenience if you want to transfer your residence elsewhere,
5. taxes that has to be applied either on the harvests or on the conversion of land into farmlands
6. the hassle of its transfer of ownership to buyer or even simply to your children,
7. the lack of liquidity that farmland has, meaning to say, if you are tire and would want to sell it to somebody else, it can sit in the market for months or years before you can dispose it,
8. you would have to insure it against all risks. unlike in gold, there are bullion companies who already insure your gold upon its purchase.
9. etc

even if physical gold is a long-term investment, still, it offers loads of convenience compared to other investments. That is, i think, why a lot of clients really diversify their portfolio using gold.

if you dont want a long-term investment in gold sir allanmm13, you should try the short-term one which is the spot gold trading. every day po kasi yung kita dun.

richpulubi · « **Reply #81 on:** Jul 24, 2012, 08:13 AM »

Sheridzma,

Gold is now trading at $1575.40 per troy ounce, but wasn't it at $1900.00 last year? Why did it go down and why won't go down further?

Why and when will it start to go up again...and to how high?

Sheridzma · « **Reply #82 on:** Jul 24, 2012, 08:41 AM »

Hi Sir. yep it is now trading at that level n contrast to its all-time high price of $1920.00 last year. from the technical standpoint, it could not go up higher than that level because of traders had already thought that gold at that time was already overbought. In fact, if you are looking at your charts, you can see that it was really fast descent, it just touched the 1920 levels and started descending again. Although it tried to reach that level again, it seemed like a lot of traders we're making pending selling orders at the top and so that pushed the price down lower.

now, from the 1900 level, it went really down to its 1530 level which is technically its trading levels in july so binalikan lang talaga nya ung ranging levels nya. if you're looking at the monthly chart of gold performance makikita mo na it just made an almost 95% retracement from the range.

That's based on my technical perspective. On fundamental insights naman, from the 1530 level, it held its position there and started climbing again because it was at this time, i think, that worse us data reports are released, signalling their impending problems in their global debts and worsening fiscal budget cuts. i think, it was also this time that the rate of inflation rose. this was sustained until february when the fed reserves announced that it is going to sustain its interest rates at near zero level until the 2014.

now, since gold has been tracking the performance of the euros and moves harmoniously with it in most times, gold has become readilly affected with the worsening fiscal crisis and impending fiscal disintegration within the eurozone countries. ang mahirap kasi, when the economic uncertainties in eurozone, investors would sell their gold holdings and run to dollars, which is gold's traditional hedge.

it's not as if dollar is getting stronger. it's just that euros are really getting weaker at this time. For me, i think the reason why gold won't go down any further is because 1530 level is already the strongest support. if it breaks that level, tuloy tuloy na talaga ang bagsak nyan. and fundamentally naman, it won't go down further because a lot of central banks are into buying gold right now. russia and china have been increasing their gold holdings. not to mention the fact that september is india's wedding month, so normally lumalakas ang demand ng gold at these times. rupee currency is a bit weak right now making gold more expensive, but hopefully, the indian government can work through this.

for me po kasi, I am most certain that the prices of gold will go up again. based on gold case studies, I can look at two reasons:
1. US - as one of the largest economies in the world and which trades inversely with gold, has the dollar bubble and the debt bubble. they cannot avoid this. this is bound to happen.
2. since gold mines are diminishing, and un nga, since gold cannot be manufactured or grown, the price of gold will really rise in time.

well-recognized financial institutions, centrals banks, and billionaires are banking on gold because they know its potential and they can see profits from it. they, with their research teams, have this kind of perspective.

I am looking at the possible 1900 level again. although, as to when, I cannot say coz right now gold is still being restrained by the eurozone debt fears. if this problems get worked out, that could be the time.

Post Merge: Jul 24, 2012, 08:44 AM

I forgot po the third reason pala why gold, for me, will really become expensive in the future.

3. gold has been found to be multi-faceted because of its properties. it does only become in demand when it comes to technology, it can now be used in medicine, in food, and in environment protection as well.

richpulubi · « **Reply #83 on:** Jul 24, 2012, 09:07 AM »

And so, if the fundamentals of the EU are bad and getting worse, doesn't that also mean gold will still depreciate some more? I did read in a book that gold is, for some reason, pegged to the euro, I don't know why.

Also, gold will shoot up if QE3 pushes through. But what if the Fed doesn't launch QE3? Will gold go down some more?

Sheridzma · « **Reply #84 on:** Jul 24, 2012, 10:32 AM »

Yep, gold is pegged down with the euro. but not for always. as you see sir, gold has a safe haven nature in that, when there is too much economic uncertainties, that would mean including the eurozone crisis, that safe haven of gold would be triggered. meaning to say, people would tend to sell their holdings, and run to gold to cover their losses elsewhere. there had been instances where gold deviated from the euro movements in the markets.

to my thinking, and you may correct me if am wrong, since euros and dollars are two of the largest global currencies in the world. since gold trades inversely with dollar, it tends to track the performance of the euros in the market.

now, for the QE, it is unfathomable how the US economy would survive without doing QEs. and as we are talking now, the fed reserves might have already done through bond buying programs and other asset purchases. although, fed chair bernanke said that there is no need for qe as of now because of the slow progress that the US economy is making (which is fallacy by the way because of the bad employment data reports, and etc.), the fed reserve still said that it is open for that option in case the economy would turn sour in the long run.

and for me, there is no way that the economy would be booming. DEBT bubble and the DOLLAR bubble. that is bound to happen. with the looming trillions of dollars of global debt and meager budget deficits, not to mention the 0.25% interest rate that will be sustained until 2014, QE is bound to happen.

it might not be this quarter, or the next, but it is bound to happen.

and bear in mind that, gold will always be in demand because of its multi-structural functions and because of its depleting source. that alone, can be the cause why central banks including our dear BSP has gold buying program.

if gold prices are dropping now, it would be for another reason: from a technical view, traders might be waiting for a very good buying price.

richpulubi · « **Reply #85 on:** Jul 24, 2012, 10:43 AM »

Sheridzma,

Thanks for the very helpful insights!

But how do you buy gold from the Philippines? And do you cost average or buy in bulk?

And what form do you buy them? I believe BSP doesn't allow retail purchases of gold, and only jewelers can buy from them.

allanmm13 · « **Reply #86 on:** Jul 24, 2012, 10:48 AM »

@Sheridzma, dami ng points mo..

1. fortuitous events that could damage the harvest products and the farmland area,
--> all investments have risk, so ibig sabihin studies should be made kung malapit ito sa delta, which part of the year pwede lang tamnan,etc
2. lack of demand due to inflation and surmounting competitions,
--> lack of demand?? booming populations, conversation of land from residential.. even UAE govt has secured a large areas of land in Africa as part of its food security measure para sa citizen nila
3. expensive labor costs that might have huge cutbacks on your gross profit,
--> expensive?? Alam ko expensive ang labor cost is IT, but farming labor cost, lalo na sa Pinas, i doubt it..
4. immovability of the investment, hence, its inconvenience if you want to transfer your residence elsewhere,
--> transfer of residence? Pre-requisite ba dapat na my residence and my farm should be together? If I have a farm in Pampanga and I work in UAE, should I transfer my farmland here? Your farm investments can be in an arable land as long na me caretaker ka.
5. taxes that has to be applied either on the harvests or on the conversion of land into farmlands
--> if taxes is your issue, lease a farmland and BTW, taxes for farm in per sq.m vs residential land sa Pinas is cheaper because mas mababa zonal lalo na sa province
6. the hassle of its transfer of ownership to buyer or even simply to your children,
--> everything has hassle, so do a proper estate planning
7. the lack of liquidity that farmland has, meaning to say, if you are tire and would want to sell it to somebody else, it can sit in the market for months or years before you can dispose it,
--> lack of liquidity makes it non-susceptible to stock market volatility. BTW, wag mo pagurin sarili mo sa farming, you can leverage your time by hiring laborer.
8. you would have to insure it against all risks. unlike in gold, there are bullion companies who already insure your gold upon its purchase.
--> if you insure a land or a gold, it has cost to the investor. Your bullion companies who is securing the gold will be charging you on the normal basis.

Going back sa precious metal, i talk sa isang gold bullion dealer dito sa UAE. He said Silver is the new gold, because its dirty cheap. Gold is for kings while silver is layman.

Why not silver then instead of gold?

richpulubi · « **Reply #87 on:** Jul 24, 2012, 11:13 AM »

allanmm13,

Actually, there are good arguments in buying agricultural land. Jim Rogers claims that the average age of a farmer in the US and Japan is 60+, and there are less and less farmers, but more and more people. Also, due to the rapid depreciation of the USD and Euro, there is bound to be hyperinflation...more for food commodities than minerals or oil.

But wouldn't it be easier to invest in equities of companies that deal in commodities, like Agrinurture etc? Rather than buying agricultural land that, pagtalikod mo, may squatter na?

Oh ya, the thing about silver is that it tends to be more volatile ata than gold. Bigger swings in value. Bigger gains, but also possible bigger losses. Also, if you're buying physical silver, masyadong bulky, compared to the portability of gold.

Sheridzma · « **Reply #88 on:** Jul 24, 2012, 11:32 AM »

Quote from: richpulubi on Jul 24, 2012, 10:43 AM

Sheridzma,

Thanks for the very helpful insights!

But how do you buy gold from the Philippines? And do you cost average or buy in bulk?

And what form do you buy them? I believe BSP doesn't allow retail purchases of gold, and only jewelers can buy from them.

Well, you can buy naman the gold in brokerhouses here in the Philippines. If you are into physical gold (coz there's also spot gold trading), you can buy it from a brokerhouse. At least that way you are assured of the purchase you made because you are given a gold trading account and you can monitor your transactions. you are also assured that you are buying your gold at its spot price on the market meaning to say, walang lamangan po yon. You can buy in bulk and or in piece depending on your equity.

what I like in buying from a brokerhouse is that, i know my investment is secured. I can see all of my transactions and it's way easier to liquidate my purchase or to sell it back to the company when I'm already seeing profits from it. That way, I wont have to feel threats for my security in carrying that gold around. plus, the fact that my gold is insured and already assayed and measured, I can sleep better at night.

You can also buy it from the black market or from sellers below the spot price. problema lang talaga kasi is the assurance and the assaying of it. marami din kasi sablay. so in order to avoid all of that inconveniences that I would have to go through, I would rather buy it from a reliable company.

allanmm13 · « **Reply #89 on:** Jul 24, 2012, 11:55 AM »

Quote from: richpulubi on Jul 24, 2012, 11:13 AM

But wouldn't it be easier to invest in equities of companies that deal in commodities, like Agrinurture etc? Rather than buying agricultural land that, pagtalikod mo, may squatter na?

@RP, i think the biggest argument will be.. Would you like to hold a paper asset or a physical asset? Maganda lang sa paper, walang pwede mag squat

Me and my wife, will do an experimentation by end of this year in our recently bought 2 has of farm sa province.. Baka me makuha kami more learnings in practice..

There's another argument from Mike Maloney, a well know precios metal investor and book author... Stocks, commodities, real estate and precious metals are part of the cyclic bull markets.. His theory,says, that precious metals(PM) and commodities (and commodity producing assets like farms) will be a good vehicle for impeding hyperinflation.

The case of gold as physical asset is a good argument during hyperinflation.. But the other disadvantage, walang cashflow, unless ngayon pa lang maging negosyanteng alahera mga me hawak ng ginto to get regular income from their gold holdings. And after the hyperinflation period, he theorize, na you should move out sa PM dahil yun naman ang next na bubble to pop out.. Move to another asset class that will be in cycle of boom and bust.

That's why siguro Warren Buffett, was never attracted so much in going for these precious metals. He prefers cash generation more than capital gains.