Don't Shy Away from Investing in Gold

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Gold prices were up today (Thursday) as the U.S. dollar retreated against other currencies, leading foreign buyers to favor investing in gold

The most actively traded gold contract, for April delivery, rose $2.70, or 0.1%, to settle at $1,590.70 a troy ounce on the Comex division of the New York Mercantile Exchange.

"The gold market is getting propped up by a break in the dollar index," Ira Epstein, director of the Ira Epstein division at the Linn Group, told The Wall Street Journal. "The problem is, people are not buying into the rally, they're buying it on the dips."

If gold prices cross the psychologically important $1,600-an-ounce level, confidence in investing in gold could strengthen.

Until then, it looks like investors will stay busy trying to profit from the record-high Dow.

"With investors pouring money into the stock market trying to chase the run up, retail investors have shied away from gold," David Beahm, vice president at precious metals investment firm Blanchard & Co. told MarketWatch. "However, it seems that large buyers are still out there and gold is holding up even with all of the negative sentiment."

Investors shouldn't forget the protection gold offers portfolios.

"Retail investors seem to have forgotten that since the previous stock market highs in 2007, the stock market has barely produced a return whereas gold is up over 100%," Beahm continued.  "The real question is which investment has further to go? A stock market at all-time highs in an economic environment that is barely holding on to growth or gold, which will protect investors' wealth during the uncertain times that lie ahead."

These Big Buyers Keep Investing in Gold

Although the importance of gold is lost on some individual investors, central banks know its value. Just look at how eager they've been to collect more of the yellow metal.

Central banks in 2012 increased 17% from 2011. Total buying reached 534.6 tons, the highest level since 1964. Q4 buying was up 29% from the same quarter a year earlier, marking the eighth consecutive quarter central banks were net purchasers of gold.

"Central banks' move from net sellers of gold, to net buyers that we have seen in recent years, has continued apace," Marcus Grubb, Managing Director, Investment at the World Gold Council, said last month. "The official sector purchases across the world are now at their highest level for almost half a century."

Worldwide central bank buying of gold, robust in 2012, could pick up this year as stimulus measures increase or simply remain pat.

In efforts to diversify portfolios from devalued currencies, emerging market central banks were the biggest gold buyers – especially Russia.

A Bloomberg News article last month reported that Russia's central bank added 570 metric tons of gold in the past decade, making the country the world's biggest gold buyer. That amount is a quarter more than the world's second-biggest buyer, China.

Investing in Gold

In February, when gold was headed for its fifth straight month of declines, we asked our Global Resources Specialist Peter Krauth what people investing in gold should make of the pullback.

"The fact is, despite this pullback, gold prices are consolidating at a relatively high level, which is rather bullish. As well, gold's price is forming a technical pattern known as a "symmetrical triangle,' which also provides a bullish setup," said Krauth.

"The last time we had this was in 2008 to 2009," explained Krauth. "After that consolidation, gold began a multi-year climb that nearly doubled its price. I think we are in the first innings of another such cycle that could take the price much higher, and almost certainly to new all-time highs."

As for investing in gold stocks, Krauth said now's a good time to stock up on investments related to the yellow metal, and explained how in this accompanying video. Take a look.

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  1. Jim | March 15, 2013

    the sad facts are many individual investors (i say MANY!!!) chase the highs and sell the lows. that's why 90% of them lose $ and only 10% smart guys make $!!!

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