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Archive for the ‘Gold Prices’ Category
Rob McEwen comes out with his Projections on the Gold Market
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Rob McEwen, Chairman and CEO of U.S. Gold and founder and former CEO of Gold Corp the second largest gold producer in the world was interviewed by Bloomberg on January 12th 2009. He has been on the record since March of 2006 saying that gold will reach $2,000 per ounce by the end of 2010. He also states that he believes that gold will hit $5,000 per ounce somewhere between 2012 and 2015.
He sites as his reason for this rapid run up in the price of gold will be due to the governments around the world printing money at a high rate. Mr. McEwen thought that the bull market would have ended by now, but people are starting to see gold as money, a currency that trumps all others. This new demand has fueled the fire further than he thought it would. He is so strong on gold rising that he advises that gold mining companies do not hedge.
In my opinion, Rob McEwen could be right. Gold is in a bull market, and typically bull markets end with a blow-off top in the third phase. We have not seen that third phase yet, so we could see very sharp and dramatic price increases during that time frame. It is undeniable at this point that the U.S. Government is printing money at an alarming rate. Some experts speculate that they have doubled the money supply in under a year’s time. Anytime money printing is done in this fashion it puts extreme pressure on inflation which in turn puts upward pressure on gold. Look at what gold did in the 1970’s, when inflation was running high, gold grew from $35 per ounce to $850 per ounce.
All assets run in cycles so we very well could see gold hit $2,000 per ounce this year. I think it will depend on how the economy performs this year and how much confidence is instilled in the American people. Many have said that the hole has been dug and that the dollar will ultimately collapse like all other fiat paper currencies have. If that is the case gold could go much higher than even $5,000 per ounce. But let’s hope that doesn’t happen, because if it does we are in a lot more trouble than any of us want to be.
Is there a Current Floor to the Gold Price?
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Gold has been of value for over 5,000 years. Civilizations have risen and fallen, currencies have come and gone and yet gold still is coveted by people all around the world. Gold has never been worthless! It has always had some value to it; therefore it is different than most other asset classes. Stocks, bonds and paper currencies for example can all become worthless at some point.
But is there a floor under the price of gold? The simple answer is no. I am assuming that this question is pertaining to the government. Neither the U.S. Government, nor any other government has a floor price on gold. A floor price being the minimum a person or institution has to charge for it, or the lowest possible dollar amount it can fall to. Gold can free float as high or as low as the market’s action will allow. So the price is determined primarily by supply and demand. But there are technical tools that can help us understand the price action of gold.
This leads me to believe the question is this: what is the current support level on the price of gold? Most assets trade between support on the bottom and resistance on the top. These two figures are determined by previous market action. When an asset breaks a resistance level, that figure then becomes the new support level. The current support level on gold is $1,017 which was the last resistance level. The resistance level at the top is $1,218. Gold has not tested that level since it was set in December of 2009. In addition, recently gold has had difficulty breaking $1,045 on the bottom (the price at which India bought 200 metric tonnes from the IMF) and the $1,120 mark on the top. So I am calling $1,045 to $1,120 a smaller trading range within the technical trading range.
Should gold go below $1,045, look for it to test the $1,017 level. If gold breaks the $1,120 level on the top look for it to test the $1,218 mark. If gold should break the $1,218 level that would then be the new support level with the new resistance level being unknown because it has never been higher. If gold should break the $1,017 support level that would then become the new resistance level and the next support level would be around $1,000.
Technical language can be confusing, so if I have done so I apologize. In the simplest form, the current support level is $1,017 and the current resistance level is $1,218.
Gold Price Gains and Losses over the Last 3 Months
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The price action on gold has been hot lately. Gold closed at an all-time high on December 2nd of $1,212.50 per ounce. The price action prior to that was climbing almost daily from the $1,050 mark. After it reached the high of $1,212.50 it slowly made its way down to test the $1,050 support level. It came close to this support level but never broke it. It closed at around $1,058 on February 5th and since then has steadily climbed to where it sits today of $1,112.
The up and down market action can be scary for your average investor. This is why I always say, if you are not a day trader then you do not need to pay attention to the daily market action. What you are looking for are trends in the market. Trends are what tell you what to do in the long-term. Trends should guide your strategy. If you look at a chart of gold from 2000 to present you can see a long-term positive trend. It started at $252 per ounce and has been climbing ever since. Sure there have been some big corrections along the way, buy that is what you want. Ups and downs are a sign of a healthy market. If you were watching the daily market action you might have sold out too early. This is why trends are so important.
Take March of 2008 to November of 2008 for example. Gold rose to an all-time high of over $1,000 per ounce and steadily fell to $709 per ounce. Had you have sold out because of the downward slide, you would have missed out on the following upswing. As for the current trend, everything is pointing towards a continuation of the upward trend. Two of the biggest factors playing into the future of the gold market are the U.S. Dollar and normal bull market cycles.
The dollar has been in a steady demise for a few years now, and with all of the money printing going on with the U.S. government I don’t think it will be going strong anytime soon. I have written many times in this blog about the three phases of a bull market which I think is also a big factor contributing to the positive trend in gold. Many experts are calling for gold to hit $2,000 per ounce this year and $4,000 to $5,000 per ounce before the trend is over.
Gold, Long-Term Hold
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When investing in gold you will often hear it called a long-term investment. What exactly does long-term mean? You will typically hear precious metals companies refer to a long-term hold as a period from 3-5 years up to 10 years or possibly more. Where did this come from? It was illegal in the U.S. to own gold from 1933 to 1974, and prior to that gold was pegged to the dollar for 100’s of years. So owning gold bullion as an investment is a fairly new thing. Its track record is currently at 36 years. When compared to other investments that is a fairly short time frame.
If you are reading this blog for the first time then we must pause and differentiate between the two types of gold you can own, bullion and numismatic gold. These two types of gold have different strategies for ownership behind them and different spreads (see previous blog post). These factors will determine length of hold. For more on the different types you can read bullion and rare gold coins.
My thoughts on long-term hold and where it came from is this. When the dollar was removed from the gold standard in 1970 the price action was allowed to free float. The price of gold rose from $35 per ounce to $850 per ounce in January of 1980. That was a fast and significant rise in the value. From there gold fell to its low of $252 per ounce in 1999, with ups and downs all along the way. That was a fairly slow and significant fall. Because gold as an investment is a fairly new opportunity companies want to disclose to their clients that it may take a while to grow your gold’s value. Gold’s recent climb from $252 per ounce in 1999 to $1,115 where it stands today has been a fairly steady rising pace. So if you bought bullion in 1999 you would have realized over a 340% gain.
There are times when it has taken a few years to see your gold grow and there have been times when it would have taken many years to see your gold grow. This is why everyone needs to DIVERSIFY their portfolios.
When comparing the two different types of gold, bullion and numismatics, these tend to perform differently. If you look at a PCGS chart you can clearly see that over the past 40 years numismatics have outperformed gold bullion. This is due to a few factors that make it unique, but mainly it is rarity. Because the cost of doing business is higher, it will take you longer to make up the difference, which is another factor in “long-term.” It should be noted that bullion and numismatics do not move in lock step with each other. In fact from 1987 to 1989, bullion lost roughly 10% of its value while numismatic coins according to PCGS went up over 600%.
The net of this is that sometimes it can take a short period of time to cover your costs of doing business, and other times it can take years. That is why it is noted by companies to think long-term when it comes to gold ownership, because no body really knows. In addition, many people choose gold to protect against a collapsing dollar, and in that case it could be a very long hold.
What does it Cost to buy Gold
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Buying gold coins should be a process of discovery; for you and for you representative. You will begin to discover the ins and outs of owning gold in your portfolio and what it can do for you. On the other side your broker should discover what your goals and objectives are. Items like: are you more concerned with asset protection or growth, are you long-term or short-term, what are your concerns about the future, how much of your overall portfolio do you want in gold, as well as other questions that may arise.
These questions will help you both narrow down to the right type of gold and or silver that is right for you. Once you have a strategy in place it is easy to begin to acquire the appropriate precious metals for you. This can take place in one lump some or your strategy could include a plan to acquire pieces over time.
There are various costs of doing business in each category of gold and silver. Bullion gold or silver, meaning loose coins and bars of a more recent issue, typically can range anywhere between 2-10% on average throughout the industry. This is what is known as the spread. The spread is the difference between retail and wholesale. Typically you will buy at retail and sell at wholesale. Common dated numismatic gold coins with typically rage anywhere between 15-25% and better dated or rare gold coins will typically range between 25-35%. These are averages; some can be higher or lower depending on the company. Make sure to choose a company that discloses their spread verbally and in writing and that it is clear exactly what their spread is (not a range).
Do not be afraid of high spreads! You want to use the right tool for the right job. That might mean owning rare gold coins which fetch a higher premium. This type of gold has outperformed gold bullion in the mint state rare category (according to PCGS) close to 4-1 over the past 40 years, and has some other very important benefits that other types of gold do not have. This type is a typically a longer term hold. For these reasons it is important to understand your options and your goals, in order to apply the right tool for the right job.
Bullion Bars & Ingots
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Gold is the hot topic right now. You can see ads for gold all over the web, radio, print and TV media. This increased awareness is due to a bull market that is in the middle of the second phase of three phase bull market. Gold has gone for $252 per ounce in 1999 to $1,063 per ounce where it sits today. That is over a 300% rise in value.
When people think about gold their minds usually go to jewelry. Most Americans own some form of gold jewelry, however very few people own gold as a financial asset. Some estimates put this figure somewhere around 3%. This will change as the market continues to heat up. As we enter the third phase gold could go up even more dramatically. Some experts are calling for $5,000 per ounce before the bull market is over.
Once someone begins to think about gold as a financial asset, they typically think about pure gold in the bar form. Sometimes people think about bullion coins, like American Eagles but pure gold is where the novice goes, even though bullion bars and coins are for the most part the same thing.
One confusion is the difference between bars and ingots. Bullion bars are virtually the same thing as bullion ingots. The only difference is that ingots are formed by pouring molten gold into a mold and chilled until solid, whereas bars are minted from blanks that have been hand cut into the proper dimensions. Markings are almost always applied by whoever formed them.
Which is better to buy? That depends on which one is the cheapest. Gold is gold when it is in the pure form. Typically the larger the quantity bar or ingot you buy the lower the premium you will pay per ounce. Therefore don’t get hung up on bar vs. ingots. When it comes to pure gold for inflation protection or price speculation buy the cheapest bar or ingot you can.
Cost of Gold
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The cost of gold is rising, and has been for the last 10 years consistently. This action confirms the current gold bull market (see the previous blog for 10 year spot chart). For individual buyers the cost of gold differentiates depending on what type of gold you buy. Whether you buy gold bullion coins or bars, or rare gold coins, these prices will vary greatly.
Currently the spot price of gold is at $1,175 per ounce. According to many experts this is a great value, because they believe gold will hit $2,000 per ounce this year. The spot price of gold is an indicator value, like crude oil is to gasoline, spot gold is to physical gold. Therefore the cost you pay for physical gold will be the spot price plus a premium. Typically the premium will be anywhere from $50 to $150 above the spot price.
Gold bullion coins cost more than gold bullion bars, due to manufacturing costs. Coins are struck multiple times and treated with more care than gold bars. Therefore if you are looking for the cheapest costing gold you should buy gold bars.
Rare gold coins cost more than bullion coins and bars. This type of gold can range in price from a few hundred dollars more than a bullion coin to seven figures. This is due to the rarity and quality of a particular coin. The more common and the lower the grade of a coin the lower the cost, the higher the grade and the rarer the coin, the higher the cost. This type of gold has benefits that extend beyond what bullion can provide. While rare gold coins have these added benefits they still have the intrinsic value of the gold itself, and history has shown that the value of gold has never been zero.
Figure out your goals and objectives, and then acquire the right type of gold to support those goals. The cost will vary, but this should not matter. It is more important to acquire the right type for you then to buy the cheapest gold.
Gold Outlook for 2010
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At the beginning of every year the “experts” come out with their predictions on the precious metals market. These predictions vary every year in their overall gold price target and timing, and should be taken as an estimate, a guide for your strategy. Never the less what is being predicted for 2010 is very exciting for those who own gold or may consider to buy gold coins this year.
James Turk
James Turk is well known for his predictions in the precious metals market. Since the 1970’s people have followed him religiously, in order to guide their decisions in the gold market. Mr. Turk got the price target for 2009 correct. He stated that gold would break $1,000 per ounce and hold above it into 2010. He is calling for gold to break $2,000 per ounce in 2010. The timing is not clear, just that it will break $2,000 this year. He also calls for a floor under gold of $1,050 per ounce, which is the price at which India bought 200 metric tonnes from the IMF at. He also states that we are in the second phase of a three phase bull market.
Rob McEwen
Rob McEwen is the chairman and CEO of U.S. Gold, a gold mining company. He was recently seen on Bloomberg and stated that he believes that gold will go to $2,000 per ounce this year and that it will go to $5,000 per ounce between 2012 and 2014. He states that this is due to the U.S. government printing dollars at an alarming rate and a lack of supply to meet worldwide demand.
Frank Holmes
Frank Holmes is the CEO of U.S. Global Investors. He states on Market Watch, that gold could break $2,300 per ounce which is its inflation adjusted high of $850 per ounce in 1980. He believes that this will be due to a shrinking supply of gold and worldwide inflationary pressures. He does not say exactly when this will occur, but that he believes that it will occur.
There are many more predictions that you can find if you search for them. Even Merrill Lynch is predicting higher gold prices for 2010. This is encouraging news for those that own gold or are considering entering the market today. If someone bought gold today at $1,133 per ounce and it went to $2,000 an ounce by the end of 2010, that would be an increase of 76%!
Rare Gold Coins Outperform Gold Bullion
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Gold has been in a positive trend since 1999. We have seen gold come from $252 per ounce in 1999 to as high as $1,225 per ounce at the end of 2009. Over that 10 year period is a 386% gain. Over an even longer period of time we have seen gold come from $35 per ounce in 1970 to that same $1,225 mark in 2009. That is a 3,400% increase! But what have rare gold coins done over that same time frame?
According to PCGS, Mint State Rare Gold Coins have performed even better that gold bullion since 1970. On their site, a $1,000 acquisition of mint state rare gold coins in 1970 would be worth $114,489 today. That is an 11,348% increase! That means that rare gold coins have outperformed gold bullion close to 4 to 1 over the past 40 years.
There are a few factors as to why this has occurred. Gold bullion only has the value of the gold content itself. If you own a 1 ounce gold bullion coin, like an American Eagle, then it is worth 1 ounce of gold. Rare gold coins also posses the intrinsic value of gold. A $20 Liberty minted between 1849 and 1907 contains one ounce of gold, so therefore it will never be worth less than the gold content itself. However, rare gold coins also have value do to their quality and rarity. However, the main factor that contributes to their value is supply and demand forces. No one can mint coins prior to 1933, therefore supply is limited. As demand heats up, supply becomes tighter and the value goes up. Gold bullion is being mined everyday, therefore supplies are constantly increasing.
Quality and rarity of any particular coin play a large role in its specific value. The higher the quality the more valuable it will be. The same goes for rarity, the more scarce a coin is the more valuable it will be. Rarity is easily determined. PCGS keeps a population count for every coin ever minted in the U.S. in every grade. PCGS has also made grading simple. PCGS and NGC grade coins on a scale from 1-70, 70 being perfect condition. Where you find the performance is in the mint state category, which runs from 60 to 70.
You can see that if you have a high grade mixed in addition to a very rare coin the value would be very high compared to a coin that is of a lower grade and rarity. In fact one coin, the 1933 $20 Saint Gaudens, which was at the time considered to be the only one in existence, sold at auction for $7.5 million. Values range from a few thousand dollars per coin up to that amazing $7.5 million value. Buy rare gold coins.
Gold Trend for 2009
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People always wonder when any investment goes down if it is smart to buy in at that time. Peoples’ minds run wild with concern when there are corrections in any market they are invested in. What one must follow are the trends. Look at the chart above. This chart says it all. There have been many ups and downs in the gold market this year, some small and some large, however the trend is positive. Gold has been in a long-term positive trend cycle since 1999. Don’t let the normal market action from day to day be of concern. When putting money into anything for the long-term one must only concern themselves with the trend.
What goes up must come down, this is healthy. If the market were only to rise with out building support along the way it will most likely crash hard. It is like building a house without laying a foundation. All markets trade within a trading range, with support on the bottom and resistance on the top. Without getting too technical, the market will try to test support on the bottom, and if it breaks it, the market will then test the next support level. If it breaks resistance on the top it will try to test the next resistance level. Essentially this is a trading range. Look at gold in the chart above. It tested resistance at $1,000 twice this year before it finally broke it. Then it built a foundation above $1,000. It rose rapidly to $1,200 per ounce before correcting; no foundation has been built above $1,100 yet.
If gold rises above $1,100 and stays above it, it will build a foundation and possibly test the $1,225 mark again. The net net is follow the trend and apply funds for the long-term. Allow money to work through the trends. Be in during bull markets and out during bear markets.
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