Gold Prices Could Be Setting up to Outperform Other Assets; Just Look at the Buyers
If you are worried about daily fluctuations in gold prices and are forgetting the big picture, you could be making a mistake. This is a bold statement, but don’t be shocked to see gold prices outperforming a lot of assets in the next few years.
You see, gold isn’t getting much attention these days, and rightfully so; the yellow precious metal hasn’t done well at all. Investors tend to ignore things that are underperforming.
Advertisement
But sooner rather than later, this could turn.
Know that we have big buyers remaining in the gold market. Their actions tell us that they want a lot more of it.
Russian Central Bank Remains Consistent Gold Buyer Since 2006
For example, look at the Russian central bank.
Russia, over the past few years, has come under fire and a lot of sanctions have been placed on the country. So the central bank of Russia is doing all it can to insulate itself. It’s buying a lot of gold because the yellow metal is great at insulation.
In July, the Russian central bank bought 26.1 tons of the yellow metal. It now holds 2,170 tons in reserves. (Source: “Russian Central Bank Buys More Gold in Face of Tougher Sanctions,” Bloomberg, August 22, 2018.)
The gold purchases in July by the Russian central bank were the highest since November 2017.
Also, know that since July 2006, the Russian central bank has been a very consistent gold buyer.
It is really hard to conceive of the idea that the Russian central bank is done buying gold. It may need a lot more to protect its reserves. The precious metal it has on hand is worth just about $80.0 billion.
China Buying a Lot of Gold
China is worth watching closely as well.
It’s not only the consumers in the country who like gold; the People’s Bank of China likes gold, too.
We are seeing a lot of gold going into the country and it doesn’t look like gold prices matter to the buyers whatsoever.
In June, 80.87 tons of the yellow metal were imported into mainland China from Hong Kong. This was the highest amount since March 2017, and 40.3% higher than in the previous month. (Source: “China’s June net gold imports via Hong Kong jump to 15-month high,” Reuters, July 26, 2018.)
Look at the bigger picture. In the first five months of 2018, China imported 604.9 tons of gold from Hong Kong, Australia, Singapore, Switzerland, and the United Kingdom.
Putting this 604-ton figure into perspective, the global gold mine output is around 3,000 tons. So, in the first five months of 2018, China imported an amount equivalent to 20% of the global gold mine output.
Don’t Ignore the Gold Miners…
Dear reader, I can’t stress this enough: the big buyers in the gold market could send gold prices much higher.
While the mainstream is focused on which company is going to be the next trillion-dollar giant, I am watching precious metal miners.
The recent sell-off in gold prices has made them an even better opportunity.
Let me give you an example, and I will end with it. Keep in mind that this is not a buy recommendation. It is just an example of how cheap miners are these days.
Goldcorp Inc. (NYSE:GG) has a market capitalization of $8.9 billion. The company has 53.51 million ounces of proven and probable gold reserves. These are the reserves that are feasible to mine at a $1,200-an-ounce gold price. (Source: “Annual Report 2017,” Goldcorp Inc., last accessed September 6, 2018.)
Mind you, Goldcorp has an immense amount silver and copper reserves, as well as massive resources.
Doing simple math here, at Goldcorp, each ounce of gold reserve in ground is priced at just about $166.00 an ounce.
