Gold Looks Good Here; Gold Miners Look Even Better

By Michael Lombardi, MBA for Profit Confidential

When gold bullion prices fell just below $1,200 an ounce on June 28 of this year, the general consensus was that buyers had run out. After all, why would someone buy an asset that was declining in value so fast? That line of thinking, which I pointed out many times in this column as ridiculous, didn’t pan out.

Getting into gold-related investments when the metal fell to $1,200 an ounce will one day be looked upon as the smartest buying opportunity of this decade. As we move forward this year, demand for the precious metal continues to increase, especially among consumers in India and the central banks of a number of countries.

Technically speaking, the chart of gold bullion prices is looking good. Gold prices are marching higher again, in spite of the negativity surrounding talk of deflation, the tapering of quantitative easing, and rising interest rates.

On the fundamental side of the equation, the Indian government has been very straightforward. It wants to decrease the demand for gold bullion in the country. Recently, the Indian Forward Markets Commission increased the margin requirement for gold traders in an effort to keep participation in the precious metal’s market low. To buy or sell one kilogram of gold bullion, a trader would now need to have a margin of 330,000 rupees, compared to just 130,000 rupees only a month before! (Source: Reuters, August 30, 2013.)

Chart courtesy of www.StockCharts.com

The reason for taking this step: domestic gold bullion prices have increased 20% in a month in India, as there is significant demand for the metal in the biggest gold bullion–consuming nation.
And the developing situation in Syria may put further upward pressure on gold bullion prices. Why? Because the precious metal serves as a hedge against uncertainty, and that is exactly what a possible strike by the U.S. on Syria causes.
I remain bullish on the precious metal. After reaching a level close to $1,450 an ounce, gold bullion prices have come down a little. In my opinion, this creates another great buying opportunity for investors in the gold mining sector.