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Global Demand Points to Higher Gold

By Mike Fuljenz - 

Gold closed 2012 with its 12th straight positive year, up 6.5% for the year and up over 510% for the last 12 years vs. a small (8%) gain for the broad S&P 500, a representative measure of U.S. stocks.  On the last day of 2012, Gold enjoyed a sharp ($20) rise, as Washington lawmakers waited until the last second, on New Year’s Day itself, to enact a compromise bill, “kicking the spending can down the road” while raising taxes on those earning over $400,000 (single) or $450,000 (couple). On the first business day of 2013, gold added another $15 rise to $1690 early on January 2, 2013.

In August, 2011, Standard & Poor’s downgraded U.S. debt a notch, sending the stock market into a tail spin and pushing gold up to $1900 by early September. In September, 2012, Moody’s warned that it would probably downgrade America’s credit rating if there is no improvement in the outlook for budget deficits.  Meanwhile, the third top rating agency, Fitch Ratings, issued a similar warning in November.  On New Year’s Day, Washington jumped “halfway” off the cliff by waiting until the last moment to address tax rates and doing nothing about spending. In response, Moody’s said they still have a “negative outlook” on their ratings of U.S. debt, since there has been no “meaningful improvement” on the spending side.  This seems good for gold.

Gold 52 weeks ago (December 31, 2011): $1574                         Gold’s London Low for 2012: $1537 on May 16

Gold’s price at the start of 2012: $1574                                         Gold’s London High for 2012: $1792 on October 4

Brazil Doubles Gold Reserves

One group of gold buyers clearly has no misgivings about the future of gold.  Central banks around the world, who not so long ago were selling off their gold reserves, are stacking their vaults with the yellow metal now as they become more nervous about the decimation of fiat currency values in the monetary Race to the Bottom.

Though Western central banks have not been buyers, neither have they been big sellers, in contrast to the recent past.  Western banks in general already have a hefty percentage of their foreign reserves in the form of gold, so it’s not unusual that they would not be making many new purchases as part of the growing trend.

It’s the emerging nations that see the handwriting on the wall, from Russia and China to South Korea to Iraq and numerous others, central bankers are trading their rapidly sinking paper reserves for the safety of solid gold.  Most are Johnny-come-latelies to the gold reserves principle, having trusted in the value of the dollar, euro, and yen in the past.  With the folly of that strategy becoming clearer every day, now emerging markets are playing catch-up to realign their reserve portfolios to rely on something more stable in value.

The individual amounts of gold purchases by emerging countries’ central banks are generally quite small in terms of the total gold market, but collectively they are becoming a market force large enough to provide solid price support for gold.  The U.S., Germany, Italy and France hold more than 70% of their reserves in gold, according to the World Gold Council. By comparison, the share of gold in Brazil’s reserves, the largest emerging economy after China, is 0.8%.  Emerging markets have a lot of headroom to add more gold.

Brazil recently caught gold fever.  In November, Brazil expanded its gold reserves for the third month, doubling the country’s gold holdings since August.  Brazil added 14.7 metric tons in November, bringing its total gold stash up to 67.2 tons, the most since November 2000, according to the International Monetary Fund.

Iraq joined the gold rush for the first time in years, buying 25 tons of the yellow metal.

Since they have so little gold (by ratio) in their reserves, the world’s central banks represent a significant potential demand for gold in the years going forward.

Credit Suisse Lowers Gold Forecast

Meanwhile, Credit Suisse lowered its forecast target for gold in 2013 and 2014.  The cut forecast for 2013 is by 5.4% to $1,740 per ounce, down from $1,840.  The Swiss bank also cut its silver price forecast from $33.10 per ounce to $32.20.

The bank’s forecast for 2014 for gold is $1,720/oz., down from $1,750.  Silver was cut from $31.40 to $31.30.

“The 12-year-old U.S. dollar gold bull market is not yet dead in our opinion but nor is it in the best of health,” said analysts at the bank.

 

About The Author

Known as America's Gold Expert, First Fidelity Reserve Numismatic Consultant, Mike Fuljenz has won more than 50 prestigious national and regional awards for his consumer education and protection work in rare coins and precious metals. His books, media appearances and newsletters about gold and rare coins have won Best of the Year awards from the Numismatic Literary Guild and the Press Club of Southeast Texas, and he received the NLG's coveted top honor in 2013, "The Clemy Award." Mike Fuljenz is a frequent expert guest on local and national business and personal finance programs, such as Fox Business Network and CNBC, and has been quoted in The Wall Street Journal, Kiplinger's, Los Angeles Times and other broadcast, print and online news media. A respected community leader in his hometown of Beaumont, Texas, Fuljenz is a Past President of the Diocese of Beaumont Catholic School Board and received the Catholic Charities Humanitarian Award. He has served with distinction as a consultant to the Federal Trade Commission, U.S. Postal Service, General Services Administration, United States Mint and Royal Canadian Mint, and is on the Boards of Directors of both Crime Stoppers of Beaumont and the influential Industry Council For Tangible Assets.

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Comments (7)

  1. don says:

    Mr. Fuljenz is wrong. Gold will be at 1,200 within 2 years.

  2. Ronnie Bement, Houston, Texas says:

    As I have questioned you before, how do I get a copy of Mr. Fuljenz’s “Personal Gold Guide”?

  3. PaulE says:

    Yes, there will be continued demand, especially amongst the world’s central banks, for gold. After all, they are collectively devaluing their own fiat currencies as fast as they can in the insane hope that somehow, some way they can buy enough time for the global economic system to heal itself. While this might make some limited sense, if the world was unified in pursuing pro-growth policies to expend their economies, most are doing the exact opposite. They are pursuing policies designed to shrink the private sector, dry up demand for capital in the private sector and increase unemployment. The only area experiencing growth is government.

    Eventually we will of course run out of people willing to loan us billions of dollars each week, just to allow us to run in place. Other countries will want to actually see a return on their investment (remember what that was?) instead of empty promises. That will be when our dollar starts to drop in value at an accelerated pace and only those owning hard assets (gold, silver, platinum, oil, etc.) will have any buying power. Everyone else will be rioting demanding the government “do something” to allow the spending binge party to continue. However, like Greece, Spain, France and the other self destructing economies, there will be no magic bullet the government will be able to use to save the average person for the devastation.

  4. jack mancusi says:

    can someone tell me how i can get my hands on the personal gold guide?

  5. Jean Wiggins says:

    How can I get a copy of Personal Gold Guide by Mike Fuljenz?

  6. okie says:

    The only problem with buying gold is it is not American currency…banks won’t accept it, so it must be traded on markets over seas or to jewely makers…..the ones advertising gold to sell are the ones making the profits, try selling it back to them for what you paid for it…..you lose.

  7. ike standifird says:

    How do I get a copy of Personal Gold Guide by Mike Fuljenz?

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