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Why The Gold Market Is Glittering Again

January 28th, 2016

gold timeMike Burnick:  It’s been tough finding winners in financial markets so far this year. Nearly every asset class is moving together in lockstep … to the downside.

But one asset that’s been much maligned in recent years, practically given up for dead in fact, is glittering again: Gold!

The Dow and S&P 500 are both down 8% year to date.

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Small caps have it worse with a double-digit decline of 12.2%.

China’s Shanghai Index plunged 20% in the last three weeks alone.

And most commodities are still getting shellacked with nat gas down 6.7% and Oil plunging 15.1% already this year.

But it looks like gold got its groove back in 2016!

In fact, the yellow metal is up 5.3% in 2016 and investors are responding. Buying of “paper” gold through exchange-traded funds (ETFs) and other exchange-traded products (ETPs) is expanding at the fastest pace in 12 months, with the total value of such gold-backed products jumping by $3 billion so far this year, according to Bloomberg.

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After a three-year long bear market that saw gold prices plunge 44%, the precious metal is once again glittering in the eyes of investors worldwide.

Perhaps the appeal of gold as a safe-haven asset has finally returned with volatility on the rise in financial markets worldwide.

Institutions and individuals alike are shifting their asset allocation toward gold as the ultimate risk-off trade!

Gold futures holdings by hedge funds and money managers swung to a net-long position of 1,934 contracts in the week ended January 19. That’s a huge swing in bullish sentiment compared to a record net-short of 24,263 contracts held at the end of December.

Retail investors have poured $1 billion into precious metal ETFs including the SPDR Gold Trust ETF (NYSEARCA:GLD) so far this year, on pace for the biggest monthly inflow in a year.

This is quite a reversal of fortune for the yellow metal, which sank to a five-year low in 2015 thanks mainly to a strong dollar and the U.S. Federal Reserve ending its QE money-printing scheme.

Ah, but central banks the world over are still printing euro and yen, etc. with reckless abandon. Even China is devaluating its currency in this global deflationary environment. The result is that gold has actually been appreciating in many foreign currencies for some time now.

Perhaps investors are rushing to buy before precious metals get any more expensive.

In fact about 90% of physical gold demand comes from outside the U.S., mostly from emerging markets including China and India, according to U.S. Global Investors. In China, a record 2,596 tonnes of gold was withdrawn from the Shanghai Gold Exchange last year alone. That accounts for 80% of total global production in 2015!

The People’s Bank of China now holds more than 1,762 tonnes as of December, according to “official” disclosures, but it could be much more than that. Now China’s stock market is crumbling; leaving domestic investors to search for other safe haven investments.

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  1. sam
    February 2nd, 2016 at 18:12 | #1

    @Majorx
    @Majorx
    If you buy real bullion – where do you keep it. Where do you get good rates ( cheapest place ). Is there secure place ?

  2. Majorx
    February 1st, 2016 at 02:13 | #2

    Well I have heard similar increasing concerns over ETFs including GLD over the few years since the massacre of GLD at the start of the bear decline in Gold. I am beginning to think GLD was a false front for the Central Banks to accumulate gold off record in prep for the next mighty crash of the financial system and they can steal the gold out of under the average investor. This transfers large portion of the debt losses to the average investor, a huge transfer of wealth from honest citizens to cover their sorry asses. You need to look for the loop hole that says they have the right to sell any investor gold to cover losses and only are required to return investors one percent of their original investment. I am glad sold most of my holdings in GLD and bought real bullion. F those bastards.

  3. kirk
    January 31st, 2016 at 09:50 | #3

    when i discovered j. p. morgan – chase were the custodians, i needed no more information. i sold my entire holdings. the irregularities you observe, given the custodial institution, are not surprising.

  4. Stan
    January 28th, 2016 at 16:44 | #4

    “….including the SPDR Gold Trust ETF (NYSEARCA:GLD)..”

    Speaking of GLD, anyone know why there is a clause in the GLD prospectus that states GLD has no right to audit subcustodial gold holdings? Why would the organizations behind GLD forfeit this right and create such a glaring audit loophole? I have not heard a single good reason for the existence of this loophole thus far. It also doesn’t help that GLD claims to be fully backed by physical gold bullion but yet it refuses to give retail investors the right to redeem for any of these ‘claimed’ gold bullion. There are a number of other red flags as well from what I’m reading:

    “The GLD prospectus fails to specify around how much of GLD’s gold is insured but it does give you this clause “The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate which does not cover the full amount of gold held in custody.” As I wanted clarification on this subject, I called GLD’s info line. The GLD representative acted as if he didn’t know and said they were just the “marketing agent” for GLD. What kind of marketing agent would not know such basic information about a product they are marketing? It seems like they are deliberately hiding information from investors. These representatives behind GLD sure doesn’t seem to be the most honest types. Anyone share a similar experience? Thoughts?”

    “I also recall there was a well documented visit by CNBC’s Bob Pisani to GLD’s vault. This visit was organized by the management behind GLD to prove the existence of GLD’s physical. However, the gold bar held up by Mr. Pisani had the serial number ZJ6752 which did not show up on the bar list dated at that time. It was later discovered that this “GLD” bar was actually owned by ETF Securities.”

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