It has been a relatively quiet week in the precious metal space, with gold and silver largely unchanged from last Friday. As it stands, it’s been a poor February for the sector, with gold falling 4% in USD terms, whilst silver has dropped 1.5%.

All up for the year though we’re still sitting on modest gains, with Australian dollar investors up nearly 4% for the year. Currency has obviously been a factor, though in the last couple of weeks the AUD has actually strengthened somewhat.

After falling into the mid 0.76 level vs. the USD, the little battler has climbed back toward 0.79 vs. the US Dollar, with the market starting to think the RBA might hold fire for a month or two before cutting interest rates again.

In the next week or so we could see the AUD head back above 0.80 vs. the USD, though the strength is likely to be short lived, with the just released Australian private capital expenditure report showing how soft the domestic economy now is.

On that note, it’s worth looking at this long-term chart of gold in Australian dollars.

The chart, which goes back to the late 1990s shows the first leg of the bull market very clearly, as well as the pullback we’ve suffered through these past three years.

The recent breakout looks very encouraging, even though it’s been as much about Australian dollar weakness as it has been about any pure gold price strength.

Regardless, it’s a good sign of local investors.

In other gold news this week, we’ve seen that the Austrian court of audit released a report on the Austrian central banks gold reserves, expressing concern over the percentage held with the Bank of England, as well as internal auditing processes.

The end result of this is that there could be a move to repatriate a large portion of Austria’s gold reserves back to Vienna, a move the Dutch and the Germans have already made.

If you want to read more on that story, Koos Jansen has a good read on the subject here.

Further to that, we’ve also seen that the Eurozone has increased it’s gold holdings moderately, with January 2015 gold reserves totalling 10,791.885 tonnes.

Economically, whilst it’s been a quieter week, there has been a range of poor data out of the United States. Existing home sales have fallen nearly 5% in the past month, whilst the Dallas and Richmond Fed manufacturing indexes plunged too. Consumer confidence numbers dived as well, whilst Janet Yellen's testimony was largely treated as a non-event, with markets still expecting maybe just the one rate hike in 2015.

Gold is the Worst Investment in History

Those words are a headline from an article that appeared in early February 2015 at the website www.dailyfinance.com.

The article had many critiques of gold as an investment, noting that the return on gold hasn’t been as good as the return on shares, cash or t-bills. It also suggested that gold was an inefficient investment choice, with wide bid/offer spreads, and indicated that the bullion industry was full of disreputable characters.

It then went on to say that gold ETF’s are no good either, and that finally, gold won’t protect investors in a worst-case scenario as the government will confiscate it anyway.

The article, which can be read in full here, ended by saying; “Ultimately, gold is a legacy investment vehicle from a time before mass communications, ease of global travel, and the internet. It no longer is the default store of value that it once was, and financial and technological advances have made it an investment best suited for collectors and hobbyists, but certainly not for serious investors.”

The author of the article has also written a piece where he explained that in the long run, gold will eventually be almost worthless, with technology, and better broadband penetration rates the key to ending Chinese and Indian demand for gold apparently.

That article can be read here

I won’t spend a huge amount of time critiquing the articles, for the arguments are quite juvenile, and the data they use is ridiculous, for example quoting stock returns only to 2006, right before they crashed, or looking at the return on gold in time periods where it was money itself.

The reason I’ve included the articles, and why I’ve mentioned them in this weeks report at all is because they are the exact kind of nonsense you will see when a market is close to a bottom, not to a top.

When a market is bubbling away, there is never a shortage of reasons to write ever more bullish outlooks, finding new reasons why prices will continue to rise forever. Similarly, when a market is at the depths of a bear market bottom, there is always a new reason to be ever more bearish, and to forecast even lower prices ahead.

This isn’t specific to gold either, but applies to all asset classes. The image below shows the now infamous Death of Equities cover on Business Week, which appeared in the late 1970s.

You can also see how poorly timed the heading was, with the equity market about to embark on its greatest bull run ever.

The bottom line to this is that the kind of nonsense articles about gold I’ve included in this weeks report will not be appearing when gold is genuinely in a bubble, and when you be looking to lighten your investments.

As a contrarian investor, one should actually be encouraged that these kind of articles are being written at all, as they show just how bad sentiment is towards the sector as it stands right now. That's the time you want to buy.

And despite this sentiment, gold is still trading around USD $1200 and above AUD $1500 an ounce. When, and it really is just a question of when, not if, that sentiment changes, then the potential for much higher precious metal prices will be apparent to all, and highly profitable for those buying now.

Tempting Fate?

One last, non-gold related item that I had to include this week was the following link, from the blog of Doctor Andrew Wilson, the senior economist for the Domain Group.

As you can see from the link, he has put up a countdown to when the median Sydney house price will hit $1 million.

The image I’ve included above comes from the blog, and apparently, that $1 million price tag should occur in just under 500 days, or by about June 2016 by my very rough calculation.

Doctor Wilson may end up being right, and even lower interest rates will fuel more property demand, but I see this as very much tempting fate when it comes to predicting ever higher property prices. Unlike the articles on gold I mentioned earlier, this is the exact kind of thing one would expect to see closer to the top of a market, not near a bottom.

It certainly is another reason why I’m more comfortable investing in gold, rather than housing, a subject I have written about in detail, and which you can read here.

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.