by Jeff Reeves | August 28, 2013 12:37 pm
Gold prices have been firming up after crashing through the $1,200 mark in June. As of this writing, gold prices are back in the low $1,400s for a quick gain of about 17% off summer lows — music to the ears of those investing in gold.
But gold prices are fickle, and there’s no guarantee that investing in gold will pay off the rest of the year.
So what’s next for gold prices?
Well, speculators and “paper gold” vultures will continues to make bearish assertions about redemptions from asset-backed funds like the SPDR Gold Shares (GLD) or the iShares Gold Trust (IAU) that will continue to weigh on gold prices this year.
There’s also the big downward pressure on miners that is wreaking havoc on the stock market, with gold stocks including Barrick Gold (ABX), Newmont (NEM), AngloGold (AU) and others down significantly year-to-date.
But there is hope for gold prices in some of the data. Here are a few reasons to think about gold investing as a less risky proposition in the second half of 2013:
Jewelry Demand: The World Gold Council just released its “Gold Demand Trends Q2 2013” report, which notes global jewelry demand was up 37% year-over-year in the period. Thanks to low gold prices, gold volume by weight hit the highest level in five years. Jewelry is the single-largest portion of overall gold demand worldwide, so that’s important.
Bullion Demand: WGC also notes that demand for bars and coins was also up 78% year-over-year in the second quarter. So while ETF outflows are big (no cracks about “paper gold,” please) there still are investors buying physical bullion at a good clip, and that will support gold prices.
Central Banks Buying: The fact that central banks worldwide continue to buy up gold to add to reserves despite the recent volatility is proof that they believe the asset has an important role to play as a safe haven. The dollar isn’t being abandoned, of course, nor is gold becoming the go-to reserve currency worldwide by any means. But the fact gold continues to have an appeal with central banks even after the recent crash is telling for gold prices in the latter half of 2013.
Sellers Have Sold: John Paulson cut his holdings in the SPDR Gold Trust in half recently, George Soros bailed out and retail investors are scurrying for the exit as gold-backed funds continue to feel the pressure. But at some point, the sellers will have already sold out and we will reach equilibrium.
Stocks Are Struggling: In a time of economic and geopolitical uncertainty, that’s when gold shines. And when you look around right now at the mayhem in Syria and the decided waning of momentum in stocks … well, you can understand why gold prices have firmed up and has once again become the go-to investment that is inversely correlated to equities.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.
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