Gold has long been touted as one of the most reliable investments out there, and lately many investors have been buying it as if positive returns on the metal were guaranteed. However, all that could change in 2012 if the Chinese government gets its way. According to GFMS, a global economic consulting firm specializing in precious metals, the Chinese market absorbed around 22 million ounces of gold in 2011, meaning that it took between 30 and 35 percent of all newly-mined gold off the market[1]. While this might mean good things for value in terms of scarcity of the metal, the long-term effects are slightly harder to predict. To further complicate things, a London trader who has a history of accurate-but-difficult-to-confirm predictions recently reported that the Chinese government is attempting to reach contract agreements with multiple gold mining companies to buy all of their gold output on a long-term basis. The report has not been confirmed, but if it is true and the Chinese government succeeds in this effort, it will have a detrimental effect on global gold markets, which are heavily leveraged and have only a small fraction of the amount of gold necessary “to meet the contractual obligations of existing contracts.” Should the availability of newly-mined gold go down, gold markets like COMEX would likely have to close out many short positions and dramatically reduce sales volumes on paper contracts for gold. The result would certainly be higher gold prices, but it could also result in “outright debt default of one or more…national governments,” bank failures, inflation and possibly even seizure or shutdown of major global market operations, warn analysts.
Of course, these are worst-case scenarios, but if you are buying gold – or thinking about doing so – then you do need to be aware of these issues. Some economists have predicted that gold will actually experience a bear market starting in May of this year, largely due to falling prices in the latter part of 2011. However, most agree that a “panic in the market can send gold rallying again” and predict that at worst, the metal might fall to $1,450-$1,485 before catching a bounce[2].
Are you planning to invest in gold in 2012?
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[1] http://news.coinupdate.com/major-gold-market-changes-coming-next-year-1130/
[2] http://business-standard.com/india/news/commodities-gold-to-ruleroost-in-2012/460398/
It my opinion that the best way to acquire gold is to mine it. Albeit, I am biased somewhat as I am
a small commercial gold miner, operating in Ecuador. Using somewhat inefficient methods, my cost to produce an ounce of 22K-23K alluvial gold is around $800. I am currently looking for capitol investment to purchase equipment that will increase efficiency,more than double production and so should reduce costs by half, probably more. $200 – $400 an ounce for gold is what I want to pay. I am also beginning the process of converting my “cheap” gold into real estate by purchasing ocean front land for development. I can buy pristine ocean front property for as little as .80 a square foot. Do the math and you will see that I can take $200 – $800 an ounce gold, sell it for just under spot, invest in ocean front real estate that runs .80 a sq. ft. and be in the land for next to nothing, my actual cost. I was previously a commercial general contractor, and I can build top quality custom, U.S. standard homes and condos for around $60. a sq. ft. I am also looking for investors interested in developing ocean front properties. I’m too small for China to be interested, but maybe one of those gold markets will come looking for gold to cover their contracts. Wouldn’t that be nice.
I must say, of all the real estate / investing newsletters I receive, I enjoy Bryan Ellis the most.
This is good info so thank you. All I think is:
1) Is gold somehow going to go to $zero like stocks can, etc? Never.
2) Get your PHYSICAL gold now at anything under $2K/oz and you’ll be just fine 3 years from now.
3) Buy PHYSICAL silver and a little bit of other precious metals too. That’s the type of “diversification” you need, not that BS that the financial advisers tell you for across-the-board mutual funds! (I know, i used to be one telling people that.)