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News & ResearchContradictions In The Markets 2012

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Sorry I haven't written for a while. To be honest, whilst investing some serious time and effort into a number of really exciting GMR projects, I have been observing the precious metals' markets with my mouth open in disbelief.

What on earth has been going on?

Theories ranging from US bank manipulation to techinical selling driven by sellers scared of a more punitive US capital gains tax regime next year have been blamed ... here's my $0.02

 

I think there have been two important factors hampering precious metals prices:

1. Precious metals' spot prices are not determined by physical bullion demand

We have been reminded of late that gold and silver prices are based on supply and demand in the futures markets - not at bullion retailers, GMR or even exchange traded funds. The paper/spot market and the physical markets have diverged now as, despite rising demand for the physical metal, technically-driven selling in the futures markets has sent precious metals price tumbling.

The UK's Royal Mint and the US Mint (to name but two) have seen record demand for physical bullion in 2012. The major gold and silver exchange-traded investment collectives are at virtual-record levels of assets in tonnes - and yet prices of the underlying metals have fallen of late: how long can this contradiction last? 

 

2. Reality seems to be taking a back-seat to hope and expectation

Nothing that has occured in 2012 has made me feel differently about the facts below, which all should be positive for precious metals. There can be no magic wand or sticking-plaster solution to these hugely important, globally-fundamental, issues (and the uncertainty should lead to a flight to real asseets):

The European debt crisis has not been resolved

The fiscal cliff will negatively effect 2013 growth in the US

Low interest rates and negative real bond yields persist

Quantative easing on an unprecedented scale persists 

 

Emerging market central banks are buying gold for reserves

Gold only (the World Gold Council estimates) accounts for 1% of global investor holdings 


2013, in my opinion, might not very be good for many conventional investment markets, but should be good for precious metals.

I have said out loud at GMR, more than a few times during the course of the year, that I saw investing in gold as similar to tossing a two-headed coin:

On one head, QE-driven global growth and the resulting inflation would be good for gold ... on the other, the devaluation of fiat currencies and resulting collapse in confidence in them would be good for gold.

What's changed as we enter 2013? 

 

Reality -check

 


Sunday December 30, 2012 by Robin Newbould