Real Wealth #326 02/15/2013
Gold Frenzy Buying by Central Banks hits 48 Year High
Gold's recent sell off is a deceptive dip that will catch investors flat footed. It's a short term event that will in hindsight look like a miss buying opportunity.
The dust has just started to settle from the economic crisis we have been suffering under since 2008. Economic growth in 2012 inched up to an increase in GDP of 2.2%. In addition the panic in Europe has quieted for now. Europe is still suffering from -.5% GDP decline in growth.
Yet, despite the quieting in the financial markets, the rise substantial rise in the Dow and the S&P and improvement in the European and U.S. economy, demand for Gold (the universal safe haven for investors) hit a record high in 2012 the highest since 1964. Central banks were the biggest buyers; they bought $236.4 billion of gold last year.
A big part of the improved demand picture for gold came from purchases by global central banks increased 17% over 2011. They bought about 534.6 tons, the highest since 1964. They have been net buyers of gold for eight consecutive quarters.
The country of India has always been a big buyer of gold. Gold is very important to the Indian culture. Demand was down 12% for 2012. India did repeal the excise tax and demand rebounded. In the 4th quarter of last year, demand jumped 41%. Jewelry and investment demand were the main drivers of the increase. Jewelry demand was about 153 tons, and investment demand was about 108.9 tons.
Chinese demand was flat due to the much-advertised slowdown in the Chinese economy. There are signs that the Chinese economy is recovering. Total demand did increase 1% in the 4th quarter of 2012. Jewelry demand was about 137 tons, and investment demand was about 65 tons.
Gold was up 7% in 2012. It was the 12th consecutive yearly rise for gold. An investment adage that investors should remember: investment trends can go much further and last much longer than most people anticipate. This is certainly true for the gold bull market.
With gold selling off the past few weeks my indicators are telling me that gold is very oversold and set for a bounce back to over $1675 in the short term. This oversold situation cannot be ignored.
The next few months are going to be critical. The U.S Congress is very likely going to trigger a financial crisis if it either doesn’t pass a bill to raise the debt ceiling or once again allows the government to shut down. You do not want to be short gold at this point and frankly you should be adding to gold and siver positions now.
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