Gold-Bashing Gives Way to Reality

The Media is Realizing They're Wrong about Gold

Written by Adam English
Posted May 10, 2013

If there's one thing the mainstream media loves more than anything else, it's beating a topic to death.

As long as it draws an audience — and their competitors are shouting the same points in their collective echo chamber — the public flogging will continue.

Even financial news, which is far less sensationalist than politicals or current events, can't seem to avoid this modern paradigm.

Just take a look at the drubbing gold took after the massive correction.

I've already talked about how the popular conclusion is off the mark in the past... yet the headlines continue:

  • “Gold Plunges as Fears Over Inflation Fade” Wall Street Journal
  • “Gold, Long a Secure Investment, Loses Its Luster”New York Times
  • “Paulson Bid to Resurrect Reputation Hurt by Gold Gone Bad” Bloomberg News
  • “Gold extends losses; ETFs at 4-year low” Reuters

However, we're finally starting to see some coverage for stories that follow trends far larger than the short-term correction in recent weeks. The echo chamber is starting to crack under the pressures of reality.

“Gold Imports by India Seen Topping 100 Tons For A Second Month”

As Bloomberg News notes, the world's largest consumer of gold is poised to import more than 100 metric tons of gold in May. April saw more than 100 metric tons of imports as well.

Imports hit a record high in 2011 at 969 metric tons and slipped to 860 metric tons in 2012. Combined jewelry and investment demand was at 864.2 metric tons.

The massive buying spree is the result of India's impending tax and import restrictions. The tax on gold has tripled from 2% to 6%. Jewelers are paying $10 to $12 above spot prices to secure supplies ahead of any restrictions that may be imposed to stem a worsening current account balance for the country.

However, inflation is running above 10%. And gold for jewelry has deep cultural roots in the country. Restrictions may stem bank purchases, but they will not affect imports for jewelry for domestic use and exports.

In spite of the potential drop in demand in coming months, there are plenty of people willing to pick up the slack — especially further east...

“China Gold Imports to Keep Growing After Hitting Record High”

Reuters News is covering the story regarding record imports flowing into China. The world's second-largest consumer of gold more than doubled imports from Hong Kong in March to an all-time high. Considering gold usage in China surged 26% overall before the swift crash in April, we can easily expect Chinese purchases to increase further to meet new demand at more favorable prices.

According to the China Gold Association's deputy head, there is a shortage of gold jewelry inventory in the country due to massive consumer demand. The industry is increasing purchases to ramp up production.

The hot market for gold is creating a massive premium over spot prices in the Americas and Europe. Shanghai gold futures are consistently valued at $30 or more above global prices. China produced 403 metric tons and consumed 832.2 metric tons in 2012.

The additional demand will continue to come from overseas, which can only help gold miners that have been under siege in U.S.- and Canadian-based exchanges. And demand is so great that it spilling over the borders: Gold sales in Hong Kong during the May holidays appear to have been 50% higher than usual, accounting for an extra 40 metric tons of demand, and banks have had to ship in more supplies from vaults in London and Switzerland to avoid selling out.

“BullionVault Demand Gauge Jumps to 16-Month High After Bear Drop”

Another Bloomberg piece noted that BullionVault, an online service for investors buying and selling physical gold and silver, saw its gold investor index climb to a 16-month high. Adrian Ash, head of research at BullionVault, said in the report:

While this surge in new business is already easing, it shows the strength of pent-up Western household interest in physical bullion, which was previously deterred by higher prices. The response to April’s sharp fall is redolent of Asian gold demand. Developed-world savers didn’t chase prices higher in late 2012. Now they’re buying the drop.

Combined, BullionVault holds a bit over $1.5 billion worth of gold in vaults in London, Zurich, New York, and Singapore.

This news isn't surprising, considering U.S. Mint sales rose to the highest level since December 2009 after the price drop. (April sales totaled 209,500 ounces, a full 338% higher than March.)

Reports show similarly massive-increased sales in Australia and the United Kingdom as people interested in holding physical gold unleashed pent-up demand.

And silver has been even more explosive, as Nick discussed in Wednesday's article.

12-Year Trend Trumps Speculators 

In some ways, I can understand why the gold-bashing echo chamber exists: All of the mainstream media journalists are glued to their screens, looking for the latest information from Wall Street.

Which means they saw exchange-traded products suffer through a rout in paper gold and silver. ETFs and ETPs dropped $17.9 billion in value through April, and journalists made a conclusion that would make sense for equities.

But this "conclusion" hardly works for precious metals. Because when it comes to precious metals, it's all about the real thing — not speculators using ticker symbols tied to volatile futures spot prices. Gold and silver both have massively out-sized paper trades compared to actual physical transfers.

Finally, it seems reality is starting to creep back into news stories. Before long, we'll see this media trope dissolve as the short-term memory of panic in speculators fades and the 12-year trend — not to mention the purpose of gold since the dawn of civilization — comes back into focus.

Will gold rally by the end of 2013 to make it 13 straight years of gains? I can't say for sure, because it has a ways to go...

However, I have no doubt the yellow metal is heading skyward, while fiat currencies go in the opposite direction. In addition, I believe we're far better off without the speculators looking for short-term profits.

And that puts gold right where it should be — as the world's best, ultra-long-term store of wealth.

Take Care,

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