Michael Lombardi writes: What we are seeing right now in the gold bullion market is unprecedented. The mainstream media continue to rail against gold as an investment, and prominent pundits have even declared that the precious metal will decline to $1,000 or even lower. But, in my opinion, it looks like these commentators are unable to see past the recent decline in prices.

When I look at the amount of negativity in the gold bullion market, I actually take it as a bullish signal. Contrarians will agree with me on this: when there’s blood in the streets, the best buying opportunities arise.

Gold has come under intense scrutiny in the paper market, but it seems to have become a buying opportunity for those who thought they had missed out after the gold bullion prices reached their highs in 2011.

Nothing has changed. The fundamental reasons for the rise in gold bullion remain in play. In spite of the recent price decline, the demand for gold is still just as valid as it was at its highest.

The clearing statistics by London Bullion Market Association (LBMA) showed that the total transfer of gold bullion among its members increased by 17.2% to a daily average of 28.2 million ounces in May—the highest amount in 12 years. In fact, in the same period a year ago, the LBMA reported just 19.5 million ounces in gold transfers.

And the monetary value of gold bullion transfers stood at a daily average of $39.8 billion in May—the highest since August of 2011. (Source: “LBMA: Volume of Gold Transferred Climbs To 12-Year High in May,” Kitco News web site, June 28, 2013.)

Central banks, which have been a net seller of gold bullion, are now buying. The first quarter of this year marked the seventh in a row in which central banks purchased more than 100 tons of gold bullion.

Central banks in countries like China need significant amounts of gold bullion because other major central banks (like those in the U.S. and Germany) hold a significant portion of their reserves in gold bullion—more than 70%—while China holds just less than two percent. If China decides to bring its central bank reserves even just to 10%, it would cause a profound rise in the price of gold bullion.

Remember, central banks will never say when they are going to buy; however, their actions speak louder than their words. Believe me when I tell you that they want to buy more gold bullion.

What the mainstream advisors don’t realize is that gold bullion stores its value and protects itself from uncertainty. Consider, as an alternative, the U.S. dollar: the buying power of Americans continues to decrease—what could be bought for one dollar in 1980 costs $2.83 in 2013. (Source: Bureau of Labor Statistics web site, last accessed July 2, 2013.) The opposite is true with gold bullion.

Frankly, I am bullish on gold bullion because it has great prospects in its future. Demand continues to increase, and the uncertainty around the future of the U.S. dollar makes the precious metal even more desirable. The stress in the gold bullion prices is simply due to a false belief in a U.S. economic recovery created by the stock market and the Federal Reserve.

This article Why I’m Bullish on This Precious Metal Right Now was originally published at Investment Contrarians

By Michael Lombardi, MBA
www.investmentcontrarians.com

Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

Copyright © 2013 Investment Contrarians- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Investment Contrarians Archive

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.