Who’s Buying? A Look At The Stealth Rise In Gold Prices
Sara Nunnally: We are seeing a big turnaround in the gold market. Who’s buying? It is not who you think. We turned our back for two seconds, and look what happened: Gold, like a five-year-old who’s found the cookie jar, has shot back above $1,700 an ounce.
Well above, actually. At yesterday’s open, gold was trading higher than $1,726.
So what happened? How did this “stealth” rise in gold happen?
Governments have secretly been boosting their gold buying. While we were tracking how quickly the euro is disintegrating, and counting how many times Newt Gingrich’s ex-wives have spoken out against him, governments were buying five times more gold and gold bullion in 2011 than in 2010.
They now have more than 30,788.9 metric tons hidden away in vaults, and they’re expected to buy another 190 metric tons in the first half of 2012.
Let me give you an idea of just how much gold that is: 190 metric tons is more than 6.7 million ounces.
At yesterday’s opening spot price for gold, that means governments could spend $11.56 billion on gold in the next six months. That’s $64.2 million a day, every day until the end of June!
That’s the entire state of Virginia’s healthcare budget for 2012!
Know who’s been buying gold? Emerging markets. Turkey added 63 metric tons of gold between October and November 2011. Thailand bought 52.9 metric tons in 2011. South Korea bought 40 metric tons, and Russia bought 65.2 metric tons!
Together these countries make up more than half of all the gold buying in 2011. That is a huge statistic…
Think about this for a second. If Thailand bound all that gold on the spot market today, it would spend $3.22 billion, or nearly 15% of its entire GDP growth in 2011.
Russia’s been a big buyer of gold since the second half of 2006, and China bought 454 metric tons between 2003 and 2009.
Meanwhile developed economies have been selling gold. Germany dumped almost 166,000 ounces last October and more than 169,000 ounces in 2010. France sold 56.7 metric tons of gold in 2009, worth at today’s price $3.45 billion.
I bet they wish they had that back now, eh?
Take a look at this chart from Kitco.com.
This is gold’s spot price over the past 30 days. That low on Dec. 29, 2011, was gold’s lowest point in six months, and represented a drop of more than 19% from its record price above $1,900 an ounce.
Everybody was selling gold.
Even billionaire hedge fund manager John Paulson dumped one-third of his holdings in SPDR Gold Shares ETF (NYSEArca:GLD) last fall… and he’d been calling for gold at $4,000 back in May 2011, when George Soros sold his gold holdings.
And that weight led to investors turning a blind eye to gold in this first month of 2012.
But now, big names are swaying bullish for gold this year. Morgan Stanley thinks gold will average $1,845 an ounce in 2012, while Goldman Sachs thinks gold will hit a new record of $1,940 this year.
And 2013 could see gold prices at $2,175, according to Morgan Stanley.
There are plenty of reasons why gold is going to be a major investment again in 2012, and emerging markets are going to play a big part in that. Particularly China.
According to Reuters, last October, 85 metric tons of gold was shipped to China, a massive increase in the biggest importing country in the world. Estimates for last November are coming in at a record-busting 100 metric tons.
One analyst is projecting China’s total gold imports for 2011 at 490 metric tons — more than all the gold the world’s central banks added for the entire year last year.
We’ll know soon enough… But how to play it?
You could play it safe and just buy up to shares of the SPDR Gold Share ETF (NYSEArca:GLD). Holding this ETF for the next couple of years could hand you 25%. That might be good enough to hedge your portfolio against a rocky market and a crumbling dollar, which we recommend, but it’s not nearly enough to grow your wealth.
For that, you need to join us at our Natural Resource Investing Summit in Toronto this April.
This meeting of the minds is the hottest ticket in the investment world… period. With names like Eric Sprott, manager of billions in assets, you can’t afford not to attend this conference.
We’ve shared with you some of Eric’s views here at Inside Investing Daily over the past week, but at this conference, you’ll get to truly pick his brain for the next great resource investment.
I suggest you move quickly to secure your seat at this major event. Slots are going quickly.
Related: SPDR Gold ETF (NYSEArca:GLD), Market Vectors Gold Miners ETF (NYSEArca:GDX), Market Vectors Junior Gold Miners ETF (NYSEArca:GDXJ), iShares Silver Trust (NYSEArca:SLV), iShares COMEX Gold Trust (NYSEArca:IAU), Deutsche Bank AG DB Gold Double ETF (NYSEArca:DGP), ETFs Gold Trust (NYSEArca:SGOL).
As Senior Research Director, global correspondent and co-editor of Smart Investing Daily, Sara has traveled all over the world in search of the best investment opportunities to recommend to her readers, be they in developed economies like France and Italy, in emerging markets like the Czech Republic and Poland, or in frontier terrain like Vietnam and Morocco. Her unique “holistic” approach of boots-on-the-ground research has given her an edge in today’s financial marketplace as she searches for the next investment opportunities in hot sectors like alternative energy, currency markets and commodities. Sara Nunnally’s diverse background includes studies in history, computer science, literature and financial research. She has appeared on news media such as Forbes on Fox, Fox News Live, Bloomberg and CNBC’s Squawk Box, as well as numerous radio shows around the country.
Article brought to you by Taipan Publishing Group, www.taipanpublishinggroup.com.