All that is Gold does not Glitter

305px-Versailles_Queen's_ChamberGold has long been a sign of wealth and prosperity. Whether jewelry, coins or inlaid furniture, gold shines bright. A sign of power so much so that Louis XIV le Roi-Soleil (the Sun King) of France would have tapestries woven out of gold thread. Undoubtedly the golden age in France, le Roi-Soleil improved the Palace of Versailles and had more gold added to the hall of mirrors. Gold, even in our own United States was too a sign of wealth and used to back currency for some years. Now, buying gold bullion has become increasingly popular. Turn on the TV for even a moment and you’re sure to catch a commercial offering sale and storage of gold. But has gold lost its glitter?

Large nations like China continue to buy up gold further increasing their storage to 1,693 tons (a fraction of the US owned 8,000 tons) and they can afford to make these large scale purchases. When you spend $93 billion to add to your gold reserves, as China recently did, a minor gold decline doesn’t bother them. One would think that this macro-scale demand for gold would lead to a rise in the cost of gold. However the market is not reflecting this. Gold has been on a steady decline since January 2015 and may not have found the bottom, yet. Trusting the buying habits of these national reserves like China, Germany, France and the US (the top four largest gold reserves) would usually be fair play, but not always.

Gold seems to follow no typical trends these days. Increased demand usually leads to increased price. Instability with global banking systems drive people to buy up gold. Increased use of gold in electronics and industry tend to drive up the price. However, gold is still declining. I’d contend that this has to do with the relative strength of the dollar in relation to the other currencies. As the dollar raises in value (in particular its relation to the euro) there seems to be less initiative to buy the precious metal in the currency market. A strong dollar means that you can rely on what’s in your pocket, not what shiny metal you have tucked away in the wall safe. While national reserves can buy up large tonnage of gold, there’s something to be said for the individual investor buying gold. The amount of gold being bought can drive up the price, but the level of interest and the number of individuals demanding gold is what will lead to an increase in price like we saw back in 2011-2012.

Gold closed 9/11/15 just above $1100 an ounce. Gold futures tallied a loss as well as a fifth straight session decline. In order for us to see gold reach the levels of 2011-2012 the bottom will need to be found with gold. Are we at the bottom now? Some may argue that we still have a little ways to go.  In 2008 gold was around $800 an ounce and in three years it had reached close to $2000 an ounce. While the price is on the decline, countries are not selling their gold and neither should you. Increasing your personal storage is never a bad option. We may not know where the market bottoms out, but we do know that the price will rise again. As a precious metal investor, incremental buying (just as with stocks) is extremely important. Saving fractional cents on buying on the decline will ultimately lead you to a larger profit margin when the market value increases. Gold may not have the standing value as in ‘11-’12, but there’s no need to worry because gold will find its glitter once again.

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