At USD1098 per ounce, gold price has fallen to a five year low. At the rate it is going, gold price seems on course to drop below the critical support level of USD1000. Many analysts also predict that the correction will last till the year end.
But then again, when it comes to gold, nobody can accurately predict the direction of its price. After all, the world has regarded the precious metal as safe haven and expected its price to escalate in view of the current Greece debt crisis and the recent China stock market rout. But it recent performance has confounded even the ardent gold bugs.
To put things into perspective, the gold rally has lasted for more than ten years already. From 2001, gold’s price rocketed from USD300 per ounce to USD1800 per ounce in 2011, making many gold investors rich. Invariably, an asset bubble is clearly forming. And whether investors like it or not, a massive correction for gold price is looming. So it is unsurprising that gold price is 40% lower than the 2011 peak.
The meltdown in gold price was initiated in 2011 when US economy began to revive following the financial crisis. For the last two years, with the recovery gaining pace and the improving job market, gold price seems destined to decline and had in fact, gradually dropped.
Notwithstanding the above, it should be noted that there is a dichotomy between gold price and demand for bullion. This is because besides the demand for physical metal, another factor that influences the price is the paper market. According to local bullion dealer, BullionStar, “for the week ending 7 July 2015, the notional amount of Silver that was traded on COMEX was 1,160,760,000 troy ounces according to the CFTC COT report, compared to approximately 600,000,000 to 700,000,000 troy ounces of Silver mined on average each year across the world according to GFMS Ltd. That is almost TWICE the amount of Silver traded on one derivative market over one week compared to all physical Silver mined in one year!”
Is it gloom and doom for gold and silver investors? Absolutely not the case, if you are a long term investor who views gold as a form of wealth preservation. The current price corrections for precious metals are healthy and help to weed out speculators and manipulators.
Long term investors who practice asset allocation should see it as an opportunity to accumulate more gold and silver. In fact, according to BullionStar, the demand for bullion is so robust that as of “7th of July, the U.S. Mint has announced that it has sold out of the 2015 American Silver Eagle and will not be taking any orders for at least several weeks. BullionStar still has these coins in stock and are taking orders here”.