Why You Should Buy Gold Now?

For some weeks now I have been quite busy doing what I know how to do best (buying and selling of gold/silver).Well, not only that, with a little a bit of studying. Studying a course called the crash course by Chris Martenson which I will be sharing with you in my future post. Owning some gold (real money) as part of ones portfolio has been my epistle that I had been preaching for a while now. Some sees some sense in it while others choose to ignore all my sermons for no reasons known to me. Since this is mine chosen area of niche which I have passion for, i won’t stop doing what I believe in and have passion for, for no reason.

The bullish and bearish trends of the gold market have revealed a lot of reasons why every investor should consider owning it as part of his/her portfolio. At least 5-10% of ones income should be invested into real money rather than currency of no intrinsic value. One of the reasons that I’m emphasizing owning gold is that, we are at the second phase of the gold bull market which is known as wall of worry phase. All major, secular bull markets have three phases which is very important for you to know I will be explaining it briefly below in other for us to know where we are at and where this is going.

1. Stealth Phase

This is the very beginning of a bull market and the best time to buy, when commodities can be purchase on the basis of value alone and not on the basis of mere speculation, rumor or with unprecedented trading signals. Though in this phase, almost no one wants to own them because they’ve been so beaten up in the previous bear market. It’s then that a few, extremely savvy investors take their free pick of undervalued picks.

2. Wall of Worry Phase

At this phase people tends to worry about a lot of things. Technicians fret about the huge run-up and subsequent loss of momentum… they wonder if gold price may be about to go right back where they came from. Out of the fear of the falling price, they sell their gold to “watch from the sidelines”. But gradually, despite all the fear, the market climbs the wall of worry. It eventually digests selling from the profit-takers and the timid, as new buyers overwhelm them.

For smart investors, this phase is almost as good as stealth phase, because while the easy money has been made, the big money is still ahead. It will come once the market enters the next stage.

3. The Mania Phase

Here is when the masses of individual and institutional investors become convinced the market is going to the moon, and drive it halfway to that destination. You can position yourself in the right place before the mania phase begin-then having the guts to stay invested (and even buy more through any periods of weakness)-your investments can make you rich.

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For some weeks now, you might have observed that the gold tends to by pulling high toward $1,000usd/oz. And the truth about it’s risen is not likely to go to bearish trend shortly.

1.Gold Risen:-  During the last gold bull market, gold reached its peak in 1980,rising up to $850/oz. Simply adjusting this number for inflation, today’s equivalent of the 1980 high would be $2000/oz.

2.Gold-Oil Ratio:-The gold price has been closely tracking the oil price…but right now, gold is still lagging far behind. Recently, the gold-oil ratio has been between 10 and 11 barrels per ounce, whereas the 36years average ratio is 17.5:1.Which means that17.5 barrel of oil will be equals to one ounce of gold. At current oil prices of about $66.64/bbl, gold should be priced at $1,166.2/oz. When this will come to pass? No one knows for sure. The good news is, you don’t have to wait for it.

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3.Decrease in Gold Supply:- Gold production among the world’s largest gold-producing nations -south Africa, the U.S..Canada and Australia-is decreasing. Just like oil field, gold resources are not inexhaustible. While the old “elephant” deposit are drying up, not many new ones have been found (yet)…and the industry is now starting to feel the supply crunch. Global production decreased 5% in 2004 and another 3% in 2006…to 2,471 metric tonnes. At its peak production in 1970, South Africa produced 79% of the world gold supply. Today, only 25% of the world’s gold comes from South Africa mines.

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4.Demand for gold keeps rising:-  Demand, on the other hand, has gone up. According to figure from the world Gold council, global demand for gold reached $17.4billion in the first quarter of 2007…more than doubling in the last four years. Especial in the emerging markets, demand for gold is rising fast. In India, it shot up 50% in the first quarter of 2007, compared to the same time last year. China added 31% demand year over year.

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5.Central banks are becoming buyers:- For decades, it’s been a policy of central banks around the world to sell vast amounts of gold in order to artificially keep the price down.Why?since the gold price usually rises in lockstep with inflation-and is therefore a good market for same-central banks like to see low gold prices because they make inflation look tame and (they hope) prevent their unbacked paper currencies from spiraling into nothingness. To complicate the supply vs demand scenario even more, the central banks have now decided to hold on to their gold reserves. Germany, a major holder of gold reserves, recently announced it will have no sales of gold over the next 12 months. Switzerland also announced it will not be selling gold until further notice. The U.S has suspended sales of the American Buffalo 24K gold coin and is now selling the popular one ounce gold American eagle coin under an allocation program to designated dealers.

Then, of course, you have other countries like China, Japan and India who are starting to shift their currency reserves away from U.S. dollar based investments and into gold. This will increase the demand considerably. This may sound like one of those loony conspiracy theories, but it’s true. You don’t even have to believe me. Hear it from “the Man” himself;

“Central banks stand ready to lease gold in increasing quantities should the price rise”

—Federal Reserve Chairman Alan Greenspan, 1998.

To be Continued….

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