Gold: Moving In The Right Direction!

April 29, 2014

2004 to 2013: From bear to bull

 

 

While central banks endeavour to maintain the confidence in paper “money” and try to avoid a spike in the gold price, central banks have in fact become net buyers of gold since 2010. They do this in fact at a pace not seen since the early 1970s. In 2012, Central Banks bought over 500 tonnes.

In the ten-year span from 2002 to 2012, the shift from net sales to net purchases was over 1,000 tonnes per year, an amount greater than one-third of annual global mining output.

Taking into account all national central banks, exclusive the IMF, official gold reserves increased 1,481 tonne from the fourth quarter of 2009 through the first quarter of 2013. Central banks have become significant gold buyers and the movement is from west to east.

China, e.g., is actually accumulating gold in smaller quantities over long periods of time, reporting the changes in a lump sum on an irregular basis.

China may announce their present gold holdings in the near future and many experts believe that the figure could exceed 4,000 tonnes of gold in official reserves. China would become the second biggest gold holder after the US. This will be a demonstration the gold is indeed money.

It is a well-known fact that there is strong demand for physical gold yet there is the simultaneous weakness in the price of gold futures traded on the COMEX exchange. A spike in the gold price would signal that our financial system is about to collapse, a situation which central banks want to avoid at all cost. At the same time, those central banks that accumulate gold are happy to do so at low prices. Pay-off will come later.

Corrections in the past have set the stage for significant increases in the gold price as happened between 2006-2008 and between 2009-2011. A similar increase seems to be likely in the near future, possibly triggered by the announcement by China how much gold the country holds.

First, there are a few basic facts that one has to know about gold:

  1. Money is gold, and nothing else (J.P. Morgan, 1912)
  2. Gold has unique qualities because of its purity, uniformity, scarcity and malleability.
  3. Gold is not a derivative.
  4. Gold is not a commodity because of its limited industrial use.
  5. Gold is not an investment as it has no return.

Should you rather buy gold shares instead of gold?

  1. No: you need to have both!
  2. But there is no gold unless mines produce it.
  3. When the price of gold goes up, prices of gold mining shares will go up much faster.
  4. Furthermore, gold mines have the potential to increase reserves and resources, making them more valuable.
  5. The best way to invest in gold stocks is into a diversified portfolio through an investment fund like the Timeless Precious Metal Fund or the Sierra Madre Gold & Silver Venture Capital Fund.

Gold sometimes outperform gold shares, at times however gold shares fare much better? Following some figures:

Big companies or rather “juniors”?

  • Every big company was once a “junior”! See Goldcorp.!

  • Selecting the right “junior” is high risk. It makes therefore sense to choose a Fund that invests in a diversified portfolio of “juniors” to diminish the risk.

Conclusion

  • Gold is money.
  • Central banks are acquiring gold as a reserve asset. They have become net-buyers in 2010
  • There is strong physical gold demand around the world.
  • Chine is on the way to become the biggest gold holder after the US.
  • Debt and deficits are getting out of hand.
  • Gold- and silver-mining shares promise fabulous gains as after 2008.

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The Timeless Funds (The Timeless Precious Metal Fund, The Sierra Madre Gold & Silver Venture Capital Fund, The Timeless Uranium Fund, The Timeless US Growth Fund (waiting for imminent approval)) are managed by

Timeless Asset Management Ltd, Malta (www.timeless-funds.com)

Disclosure:

The author has not been paid to write this article, nor has he received any other inducement to do so.

Disclaimer:

The author’s objective in writing this article is to invoke an interest on the part of potential investors in this stock to the point where they are encouraged to conduct their own further diligent research. Neither the information nor the opinions expressed should be construed as a solicitation to buy or sell this stock.

Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions in the stock - or to use their own brains.

In our opinion, the best approach is to buy a diversified portfolio of stocks as represented in THE TIMELESS PRECIOUS METAL FUND or THE SIERRA MADRE GOLD & SILVER VENTURE CAPITAL FUND instead of shares of only a small number of companies.

In the Aztec language the name for gold is teocuitlatl which means "excrement of the gods."

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