Global Reasons Why the Gold Trend is Your Friend


At last the world monetary forces are beginning to accept the inevitable. Gold will continue to rise.

1. China is buying. And that is not only government and Central Bank purchases. The Chinese are being told to invest in gold and silver as a means of securing their future.
2. India has purchased 200 tonnes of gold from the IMF and is rumoured to be purchasing another 200.
3. Russia has indicated it will substantially increase its gold reserves. It has purchased 15 tonnes already this year and we understand, want to add another 30 tonnes by the year end.
4. Smaller nations – Sri Lanka, Singapore, Malaysia – are taking the lead of their large neighbours

These new economies account for most of the increase in foreign currency reserves in the last 5 years. Their reserves are predominately in US Dollars, not the world’s favorite currency right now. The emerging economies need to protect their new-found wealth, and holding onto US Dollars does not seem the most secure method of protecting their future.

China and India are increasingly uncomfortable with this position, are not happy with the western fiat currencies, which are not underpinned by any guarantees, and wish to replace them with something more solid and more durable – gold and commodities. China has been using its reserves to buy mines in Africa, South America and Eastern Europe for some years now but now they are really on a gold buying spree. But to buy all the gold needed to increase their share of reserves to anywhere close to the western levels, there may not be enough gold being mined. Can you imagine what will happen to the price of gold when the collective force of gold buyers realizes there just isn’t enough out there to satisfy the demand? Now thats what leads to manic buying.

And are the developed economies still buying? Yes. The Central Banks are net purchasers of gold, new gold bullion hedge funds are opening, the general public who may never have owned an ounce of gold, apart from their wedding ring, are now inspecting gold depositories to store their newly acquired gold eagles, gold bars, and silver bullion. These investors understand what the actions of China and India have been telling us for years – the US Dollar is under threat and the only way to preserve value is to have your own little gold hoard.

If you are already a gold investor now is not the time to take profits. Hang on there even though the volatility can be really unnerving. Last week gold dropped $50 in one day and came back up again. Even nimble-fingered traders would have difficulty keeping up with it.

And if you are still undecided on what form of gold to invest in, we should warn you that again the rumor is surfacing that gold and silver are in short supply. Owners of forward contracts are increasingly wanting delivery in bullion rather than rolling over contracts. We understand deliveries are slow, or even that the buyer is being offered a premium to accept cash rather than bullion. This brings us back to the safety of ETFs backed by precious metals. If a shortage of the metal becomes apparent, the ETF concerned could be discounted against the metal. Beware.

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