Gold Investment Buying Surge Shows Further Declines Ahead for Gold Prices

Tue, Jul 9, 2013

In Gold Buying Investment Declines

When in the history of financial markets was a bottom marked by record levels of interest and buying?

That’s what we asked in April when gold prices took their hardest hit since 2008.

At the time gold investors were clamoring to buy gold. Gold sales from the U.S. Mint surged to record levels. Wait times for delivery of physical Gold Investment Buying Surge Showsgold and silver from leading coin dealers jumped to as long as three weeks.

The level of Gold And Silver Investment demand was evident in the premiums investors had to pay to get their hands on physical bullion.

We noted at the time:

Gainesville Coins, one of the largest bullion dealers in the U.S., is currently offering U.S. Silver Eagles for $29.64 each. That’s a premium of 26% over the spot price of silver. The highest premium I’ve ever seen.

On top of that, the silver coins won’t even ship for almost three weeks.

Since then two things happened.

Gold and silver prices have continued to fall. The price of gold fell another $170 an ounce to current prices at $1250 an ounce. An ounce of silver is now right at $20 per ounce, down from $22.60 three months ago.

The other thing that happened is that the premiums gold and silver investors have to pay have declined as well.

The premium Gainesville Coins is now charging $23.80 cents for a U.S. Silver Eagle. That’s a premium of 19% over the spot price of silver.

The decline in Premiums Shows That Physical Gold And Silver Investment demand is drying up, supply is catching up, and the risks of further price declines in gold and silver are very possible.

Gold Investment Buying Surge Shows Further Declines Ahead for Gold Prices

Now we have to ask, when will gold and silver prices rebound?

To answer that, all we have to do is take a quick look at financial history.

As we’ve talked about many times before, investors must develop “trust” in an asset. That trust is built over years of price increases. That trust attracts more investors, prices go up more, and the virtuous and profitable cycle repeats.

All of this is how bull markets and bubbles are created.

Gold definitely had a lot of trust built up after more than a decade of consistent year-to-year increases. But once gold turned, the trust was shattered, and the risks became very great.

And now after a five month period which contained two very sharp and sudden drops, gold has lost all trust from investors.

That puts potential gold investors in a tough spot. The risks of further price declines are very real. And that’s why the best move is to avoid buying gold if you want to speculate on a sharp rebound in prices. If you want to use it as a savings and insurance against financial catastrophe, then price doesn’t matter.

So the best gold investment advice is to simply avoid the biased voices out there that say “buy on the dip” and wait for a true bottom to hit.

In the end, the prices of all financial assets tend to rise up stairs and go down elevators.

There’s no reason to “panic buy” ever. Right now is one of those times in gold.

The odds of better prices coming just a few months away increase with every downturn as more gold investors throw in the towel.

Contrarian Investors  know their loss will be your gain.

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