Market Update: Gold rallies as physical buyers step into markets

After falling as low as USD $1130oz on Friday the 7th November, gold staged a massive reversal, rallying some USD $50oz to close out the week just below the USD $1180oz mark which had previously marked a triple bottom for the precious metal.

Whilst the market has since given up a decent portion of that rally, with gold last trading at USD $1156oz (6pm Tuesday night Swiss time), there can be no doubt that the break below USD $1180oz for gold, and below USD $16oz for silver, has been met with massive physical buying in many parts of the world.

We’ve definitely seen a marked increase in volumes, and over in America, the US Mint has had to advise clients that they’d temporarily sold out of US 1oz American Silver Eagles, though they’re set to resume sales by November 17th.

Indeed according to figures from the US Mint, buying has picked up noticeably over the last month or so, with 5.79 million 1oz silver Eagles sold in October, up sharply from the 1.97 million and 2.08 million that were sold in July and August respectively.

Meanwhile in China, despite some reports to the country, wholesale demand – and weekly withdrawals from the Shanghai Gold Exchange remain robust.

All this goes to show that whilst this latest round of price weakness might have a little further to run, physical demand, which will ultimately drive precious metal prices, is very strong. This suggests that the bull market is still alive and well, with higher prices ahead once the final weak hands are washed out.

Munich and the International Precious Metal Conference

The Precious Metal conference in Munich, which began last Friday, was a fabulous event, though my arrival there wasn’t without its troubles.

Landing without 1 Euro to my name, tired and in desperate need of a shower – I was pretty stressed to find that neither my credit nor debit card would work, and I was unable to take out any money.

A quick call to ANZ highlighted the fact that they’d quite rightly suspended my cards, as someone had been trying to withdraw a few hundred dollars every hour whilst I was in the air.

This of course also posed a challenge, and I was forced to sit and wait in the airport whilst they temporarily reactivated my cards so I could get some much needed Euro’s out of the bank.

Whilst waiting, I stumbled across ReiseBank, a smaller bank who actually allow their clients to invest in gold. I obviously took a few of their flyers, and also took this photo at their stall at the precious metal conference the next day.

The lack of access to cash was quite a sobering experience, and definitely makes one realize just how reliant we are on a smoothly functioning banking system in day to day life.

It also makes one realize how important it is to hold assets outside the banking system – of which physical gold and silver are the most liquid, portable and instantly recognizable.

Whilst the conference was incredibly well attended from my point of view, it was interesting talking to the organizers, and some of the regular speakers, who all noted that crowd numbers were well down on the previous few years, even though the whole event was very affordable.

This was just more evidence of how out of favour precious metals are with investors today – with new investors almost impossible to come across, whilst existing investors are in many cases licking their wounds, and hoping for the bottom.

The highlight of the conference, from a key note perspective, was of course the appearance of Jurgen Stark, ex Chief Economist of the ECB, although there were some great other speakers including James Turk, who was recently at the Gold Symposium in Sydney, Australia, and of course my good friend Ronald Stoeferle, from Incrementum AG.

Below is a picture of myself, Ronald and Jan Skoyles, CEO of the Real Asset Company, who attended the conference as well.

There was quite a bit of interest in the Australian economy, especially with our proximity to China, and the obvious sell off in commodity prices like iron ore (which according to reports this week in the Australian media, are heavily contributing to a reported $51 billion blow out in the Federal Budget).

There was also a bit of general shock that we have a funds management industry in Australia that is touching on $2 Trillion in size, and that despite our history as a major gold miner, and gold’s performance over the last decade, it is still not represented in any way in mainstream investment portfolios.

Some of the other highlights of the conference for me were meeting the gentleman behind the German gold repatriation movement, and especially the focus on the upcoming Swiss Gold referendum, which is due to take place at the end of this month. Were that to pass (and I’m not suggesting it necessarily will), it could prove a real perception changer for the gold market, although the Swiss National Bank is doing their utmost to argue against it.

Finally, I was thrilled to buy a few Noah’s Ark silver coins, which are issued by the central bank of Armenia, where they are also legal tender. Nice coins to add to the collection, alongside the 1kg silver bars I’ve been happily adding to my portfolio during the recent price weakness.

The major out take from the conference was one of cautious optimism for the year ahead. No one was willing to call an exact bottom (though it was pleasing to see gold bounce so aggressively off the USD $1130oz mark on the conference Friday, even though its given a portion of that gain back).

As a whole, the majority of analysts (nearly all of whom were long term gold bulls) thought we were in the final stages of this corrective period, and saw considerable potential ahead.

Whilst that might sound hard to believe after a pull back that has lasted three years now, it really is in the periods of peak pessimism that maximum opportunity exists.

Furthermore, and most importantly from an insurance perspective, the reasons to own gold continue to strengthen, which is really the main point.

Vienna - Austria

I’m actually writing this market update on a train that’s winding it’s way through the European countryside from Vienna, Austria, to Geneva, Switzerland.

Whilst in Vienna, I spent more time with Ronald Stoeferle from Incrementum, where we talked markets, the battle between inflation and deflation, and how being long the United States Dollar is now the most obvious (and arguably most overbought) trade in the world.

We also spent a fair bit of time discussing Japan, the latest moves by their central bank, and how they really do appear to be approaching the “Keynesian endgame”, with the central bank almost solely funding an otherwise completely broke government.

It was an enjoyable and really useful discussion and definitely left me more convinced than ever that we’re on the right track putting a decent portion of our wealth in physical gold and silver.

Not that the market update is meant to be a travel brochure, but it’s worth mentioning that I also had a thoroughly enjoyable time walking around Vienna, enjoying great food, coffee (and beer), and I must say that Vienna is truly one of Europe’s great capital cities. I had not expected that the city would be so big, nor that it would have such magnificent architecture and such a rich history. It was also interesting to see that some of the banks there did offer gold and silver coins for purchase, predominantly those from the Austrian Mint.

Bottom line from the conference and the trip so far is that whilst I know many clients are worried about the recent price weakness in the metals, there is no need to fear, or to panic and sell out of your precious metal holdings.

In a ‘capitulation phase’ for any market, investors throw in the towel and sell at the worst possible time. It catches out retail investors time and time again, and it’s the one thing you don’t want to do if you’re trying to maximize your returns in this, or indeed any market.

What we’re experiencing is uncomfortable, and unpleasant, but at the end of the day it is just volatility, and if there is one asset class that can withstand volatility, it’s physical precious metals.

Much more prosperous times are ahead, especially for those treating this pullback as the incredible opportunity history will judge it to be, and are averaging more capital into the precious metal market today.

Until next week

Disclaimer

This publication is for education purposes only and should not be considered either general of personal advice. It does not consider any particular person’s investment objectives, financial situation or needs. Accordingly, no recommendation (expressed or implied) or other information contained in this report should be acted upon without the appropriateness of that information having regard to those factors. You should assess whether or not the information contained herein is appropriate to your individual financial circumstances and goals before making an investment decision, or seek the help the of a licensed financial adviser. Performance is historical, performance may vary, past performance is not necessarily indicative of future performance. Any prices, quotes or statistics included have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness. This report was produced in conjunction with ABC Bullion NSW.