Barring some very unexpected events, it looks virtually certain that there is going to be some economic pain in the forecast for anyone looking to sell their gold in the near future...
Gold is down 10% year-to-date and although it hasn't been a straight decline, there's no question in which direction it is trending. In fact, the prospects are so bad for gold prices in the short term that the only thing the bears are arguing about these days is what is the biggest reason that gold is going to continue to drop.
Some point to the upcoming Fed rate hike and the downward pressure it's going to exert on the gold price. Others point to the general deflationary spiral in commodities across the board and say gold will be dragged down with it. And even though mining exploration budgets are being slashed right now, Erik Norland of CME Group argues that mine oversupply is still baked into the cake for at least another 5 years.
Of course, whether or not this is bad news all depends on your investment horizon. If you have a nest egg in gold that you want to convert into dollars in the near term, you will be feeling the pain of the fall back from the 2009 peak price. But if you are hanging on to your gold for the longer term there are still many reasons to think that the investment will be worth it.
Firstly, this is a buyer's market, and Americans know it. Even CNN is acknowledging that Americans are buying “gold bars and coins at levels unseen since the financial crisis,” citing a World Gold Council report on Q3 sales that shows a 207% increase in demand for the yellow metal. The US Mint is likewise reporting the highest sales of gold Eagles in the last five years, with nearly 400,000 ounces sold last quarter.
It's not difficult to understand why demand is surging. After witnessing the near wipeout of the Chinese stock market and the potential ripple effect that would have on world markets, coupled with low prices not seen in half a decade, storing up on some gold coins is a no-brainer for most investors looking to put some savings away for the long haul. Americans weren't the only ones looking to cash in on the deal. Global demand was up 33%, with Canada and Mexico showing 42% increases in sales.
And now, as of press time, the situation in Turkey with the shootdown of a Russian fighter jet is playing out in the gold markets, with prices spiking nearly $7 in mere minutes while the world waits for Russia's response. Although prices seem to be returning to market open levels, incidents like this remind us what gold is really an investment for: the type of political, economic or societal black swan events that can send investors looking for safety. And safety still means gold.
Barring some very unexpected events, it looks virtually certain that there is going to be some economic pain in the forecast for anyone looking to sell their gold in the near future, but as is always the case, this won't dissuade long term investors or those who are more concerned than ever about the value of their dollar denominated assets in an increasingly unstable world.