Monday

How did we miss the top of the market, in 2011?

With the benefit of hindsight, anyone can say that we all should have been selling in ’11. But we stayed in because the facts at the time seemed indicative of more growth, not a peak and subsequent decline.

Back then, it was suggested that the Fed might exitQE 2. Some might have interpreted this as a reason to sell gold, much as suggestions of ‘tapering’ recently were interpreted in that way. They launchedQE 3instead, which we expected to be bullish for gold.

So they did not exitQE; they added more stimulus instead. In addition, the Chinese entered the market, buying at least 1,000 tons more in 2012 than in 2011. Despite these facts, gold has continued to founder.

Disregarding China and Russia, since that gold is consumed domestically before entering the global market, the yearly mine supply is roughly 2,100 tons of gold. It surprises me how China can enter the market and buy 50% of available mine supply, or an additional 25% of the total supply, and yet the price of gold declines.

Where is the supply of gold coming from? I have publicly claimed that I believe gold ETFs are seeing their physical holdings go to China. In my view, this is where the 700 tons of physical gold that were redeemed during the first six months of ’13 ended up.

Meanwhile, the world’s largest consumer of physical gold – India – has been stifled. Government has imposed some very draconian measures to stop people from buying imported gold, and this has worked. Officially reported gold import numbers declined very severely, and premiums jumped for domestic gold sales.

So despite this bear market for gold, I view people who are willing to sell gold here as extremely short-sighted. For now, the Chinese demand for gold is (I believe) being supplied by gold draining out of ETFs, and the fact that Indians cannot get their hands on the stuff legally. How much longer can this current situation hold?

All of these factors stopped me from telling investors to sell gold and other precious metals in 2011.

Add to this the fact thatQEkeeps increasing and that ‘tapering’ has been thrown out by the Fed. There is a very solid case for continuing to own gold and other precious metals equities right now.

- Source, Sprott Group: