In our last market update column, we reported how the price of gold and silver had dropped significantly – and rather quickly.
With gold dropping nearly 20% to around $1600 per ounce and silver off the same to just under $30, many were starting to question the metals’ status as a safe haven. As we said in our last column, there were many potential reasons for this drop – one including many investors selling gold holdings to cover other investments and two, a temporary increase in the value of the dollar.
But in the last few days, gold has seen a consistent run in the up direction, gaining back over $100 off its lows to its current spot at $1746. Silver has seen a similar boost – going back over $35 an ounce for the first time in over a month.
Does this mean the latest correction is over? Is gold going to continue the same bull-run pattern is has since late 2001?
According to the World Gold Council’s head for investment research, Juan Artigos, it has. The latest bottom for the gold market was the level where “organic demand came in” as stated by Artigos at a recent forum held by the council.
Joe Foster, head manager of gold funds at Van Eck, says “we’re in the middle of a gold bull market that’s been going on for 10 years now…this is not a bubble and we’re nowhere near the end”
Crises with fiat currencies in Europe and U.S. are one of the main factors in the gold bulls’ argument that the latest downturn that shook confidence was just a minor correction along the bull market road. Negative real interest rates are another driver – meaning, interest rates are well below the real rate of inflation.
As long as that’s the case, gold will remain strong. Money printing by the U.S. Fed and European central banks are also keeping gold (…and silver) bullish according to the gold bulls.
The last long-term bull market occurred in the 1970s, with gold peaking in 1980. What makes things different now are interest rates according to trend forecaster Gerald Celente.
At that time, central banks were raising interest rates…all the way to 18% in fact. Back then, it made sense to put assets into cash since you were making a decent return that was ‘clean’ in Celente’s words.
Today, it’s expected the Fed will hold rates at 0% (…actually negative rates in real terms) until at least the middle of 2013 or maybe even 2014. Chief economist at DundeeWealth, Martin Murenbeeld, says “until real rates get above 2%, I see no risk for gold.”
All of these factors above contribute to the final reason gold bugs see no precipitous drop in gold – and that’s demand.
Aside from record numbers of individual buyers of gold and silver, many central banks around the world have been buying metals up. China and India in particular have begun to increase their gold reserves.
According to Artigas and others, they “…have noticed that only holding U.S. Treasuries aren’t the best way to manage their balance sheets.”
It’s hard to predict where gold (…and silver) will end up and how long it will take. But we can say with absolute confidence that as long as the current factors are the way they are now, we’ll see consistent returns from precious metals.
To learn more about investing in gold bullion or silver bullion, read more here in the blog or shoot on over to our main site to see current prices and specials.
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