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3 Reasons to be Bullish about Gold

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November 6, 2013 4:40 pm
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3 Reasons to be Bullish about Gold

When an asset class is beaten down in value, it is always worthwhile to investigate the possibilities of a rebound. Sometimes a recovery is just not coming due to irreversible changes in the market: as Larry “The Liquidator” Garfield, the avaricious corporate raider in “Other People’s Money,” remarked, “I’m sure the last buggy whip company made a damn good buggy whip.” But that is not the case with gold and silver as there are three reasons to be bullish for investing in these precious metals for the future.

It is always a good sign when the largest customer for a commodity is willing to pay a premium.

That is what is currently happening in India, the largest consumer of gold, and its demand for The Yellow Metal. According to an article in The Wall Street Journal by Biman Mukherji and Debiprahad Nayak, “Indian Buyers Pay a Premium for Gold,” up to $150 more per troy ounce is being paid than the international market price in the second most populous country in the world. In India, The Yellow Metal is not only used for investment purposes, but also for religious and ornamental needs. It is part of the Hindu faith that buying gold during the Festival of Lights, celebrated on November 4 this year, brings good luck.

There has also been a shift away from exchange traded funds, mainly SPDR Gold Shares (NYSE: GLD) and iShares Silver Trust (NYSE: SLV), to the asset industry, as noted by Richard Poulden, Executive Chairman of Wishbone Gold PLC (PINK: WISHY), a gold and silver exploration and production company with operations in Australia. This shift makes companies like Wishbone Gold PLC, which released a very positive report about its holdings in Australia, and Yamana Gold (NYSE: AUY), a favorite of financial columnist Jim Jubak, and others attractive for the long term.

The future will also bring inflation due to global central banker policies, Poulden also predicted.

Historically, that has always been bullish for the price of gold and silver. Investors flee paper money that is declining in value for the sanctuary of hard assets. Speculators will then join in, further driving down the value of fiat currencies while raising the price of gold and silver. That has clearly taken place with oil, which has assumed a role as a safe haven asset. While it has not happened with gold and silver significantly, it certainly could due to the quantitative easing measures by central banks around the world that have resulted in the creation of trillions in new currencies without the corresponding economic growth to back the paper money with value.

It was not that long ago that Barron’s ran a very positive article on Barrick Gold (NYSE: ABX), the second largest gold company in the world. But SPDR Gold shares is down almost 2.5% for the last week of market action, with iShares Silver trust off more than 3.6% for the same period. If Poulden is correct about the investors moving away from exchange traded funds, which the market certainly evinces, and towards producers, than Barrick Gold, Wishbone Gold PLC, Yamana, and others should rally in the future.


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