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Is Gold Ready for a Rebound?

Did you sell all of your gold bullion or your gold ETF shares? That certainly was the correct thing to do after gold peaked in the $1900 range in 2011 and worked its way down below $1100 by the end of 2015. However, the price of gold bullion has gone up in recent weeks. Is gold ready for a rebound or is this just another upward spike before the shiny stuff continues to drop? 24/7 Wall Street reports that Merrill Lynch just raised priced targets on 4 gold stocks to buy.

 If you think energy and the bank stocks have had a bad time, consider how gold investors have suffered over the past five years. Since peaking in 2011, the price of gold and gold stocks have taken an epic beating, and most investors tossed in the towel some years ago. However, gold is up big this year, trading once again around $1,200 an ounce, and it may be poised to move even higher in coming years.

In a new report, Merrill Lynch points out that the sentiment for the precious metal has gone from what they term as “uber-bearish” to “supportive.” While many investors got pushed out and washed their hands of the trade, now could be a good time to look at the sector again. With selling abating, demand increasing in Asia and world tensions growing, investors may want to consider carving out an allocation.

Gold is considered the ultimate haven during bad economic times. Thus it should not be a surprise that gold investment demand in China will grow. Reuters reports the story.

Gold investment demand in China has started 2016 quite strongly, outperforming interest in jewelry, but for the momentum to continue bullion would have to maintain its price rally, a World Gold Council (WGC) official said.

With a 14 percent gain, gold XAU= is the best performing asset so far this year after falling for three straight years to 2015. The metal hit a one-year high last week as turmoil in global stock markets triggered safe-haven demand.

China, the world’s top bullion consumer, has seen strong demand for investment products such as bars around last week’s Lunar New Year holiday, Roland Wang, managing director for WGC in China, told Reuters.

“(Chinese) buy when they are sure that the gold price will keep going up.”

Chinese demand for gold bars and coins rose by a fifth to 201 tons last year as a stock market rout and weakness in the currency sent investors seeking safety in the precious metal.

Is gold ready for a rebound? The Chinese stock market is in free fall and the real estate market bubble is slowly bursting so where else can mom and pop Chinese investors put their money? To the extent that the Chinese economy remains questionable we will likely see continued interest in gold for investment in that country. But, what about the rest of us?

Gold versus the US Dollar

Gold does well when so called fiat currencies are weakening. These are currencies like the US dollar that are backed not by gold but by the full faith and credit of the issuing government, which pretty much means all currencies. The USA has the most gold reserves at 8,000 tons but that only comes to about a quarter of a trillion dollars which is not enough to back all of the greenbacks in circulation which is about $1.2 trillion. When the US dollar is falling in relation to other currencies and commodities gold rallies. And when stocks are flat or falling and interest rates are low gold is attractive. However, when the economy gets back on track investors flee gold. Those who don’t pay the price as we noted in our article, Avoid Gold as an Investment, published in 2012. Gold rallied in the 1970’s and fell only to rally in the first decade of the new century and then fall again. Is gold ready for a rebound now? Our opinion is that Chinese demand is not enough to carry gold to another substantial rally so do your own homework before investing in gold this time around.

Is Gold Ready for a Rebound? PPT





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