3 Reasons Gold is “A Great Long-Term Buying Opportunity”

Release Date: 
Friday, February 27, 2015

Gold and Silver Prices

Gold prices ended the week higher due to a weaker dollar and buying support in China. “Gold advanced for a third straight session on Friday and was on track to end a four-week losing streak, supported by firm Chinese demand and a softer dollar… ‘The downside risk for gold is quite limited because buying interest from emerging markets like China will support the price at low levels, said Chen Min, an analyst at Jinrui Futures in Shenzhen.” (“Gold holds up on Chinese demand, set to snap 4-week losing run,” Reuters, 2/27/15.)

Gold finished the week up $9.50, closing at $1,214.40. Silver prices closed the week at $16.68, up $0.31.

3 Reasons Gold is “A Great Long-Term Buying Opportunity”

Henry To, Chief Investment Officer for a global investment firm, told Forbes readers, “there will be a great long-term buying opportunity in gold this year.” 

“It now appears that the decline in gold prices is nearly over, and that there will be a great long-term buying opportunity in gold this year. Here are three reasons why gold is looking good for the long run.

“1. Gold mining production growth to be tepid over the next several years

“Since gold prices began declining two years ago, the gold mining industry has shifted its focus away from developing new mines to consolidating and reducing costs of existing mines… This shift away from developing new mines is already impacting production growth… should prices decline below $1,200 an ounce, we believe gold mining production growth will stop altogether—thus putting a floor on gold prices… “

“2. The outlook for global monetary policy is highly uncertain and incoherent

“While there are still no signs of rising inflation (as measured by the U.S. Consumer Price Index), it is sensible to be wary of the global, fiat “monetary experiment” that has been in place since the 1971 “Nixon Shock.” With the European Central Bank about to embark on a 1 trillion euro quantitative easing policy, most of the world’s central banks remain highly dovish… We also do not believe that the Fed’s balance sheet, at $4.5 trillion today, will ever been unwound. The size of the Fed’s balance sheet could easily hit $7-$8 trillion when the next financial crisis hits…”

3. Indian and Chinese demand for gold will continue to rise

“By far the most important drivers in gold demand in India and China are income levels and urbanization… From a structural standpoint, both Indian and Chinese gold demand should rise over the next several years as income levels and urbanization continue to rise.

“We thus believe gold remains a solid, long-term investment and that we should see a long-term buying opportunity in gold sometime this year.” (“Why Gold Is Looking Lustrous Once Again,” Forbes, 2/20/15.)

Silver Prices Likely To Reach Triple Digits: Mining CEO

Keith N. Neumeyer, Chief Executive Officer and President of First Majestic Silver Corp., believes silver will reach new record highs.

“I’m a big believer we’re going to see triple digit silver. It sounds crazy when we’re trading at these prices but you have a 15:1 silver ratio to gold in the earth’s crust…and we’re mining 10:1 so for every ten ounces of silver one ounce of gold and we’re trading at 70:1 [gold to silver]. How do you trade at 70:1 and mine at 10:1? It doesn’t make any sense…” (“Still Eying Triple-Digit Silver,” Kitco, 2/26/15.)

Gold is “Absolutely” A Safe Haven Asset: BMO Analyst

Jessica Fung, a commodities analyst for BMO Capital Markets, told Kitco news that gold will always be a safe haven asset.

 “[Gold] is absolutely a safe haven, it absolute is and it always will be and that is what it will take to drive prices higher… When you look through history.. we saw a major increase during the oil crisis in the 70s, and then the next time we saw real gold price trend was right ahead of the financial crisis so it takes these types of to really drive gold prices… if we don’t manage to grow ourselves out of this debt, if don’t manage to take ourselves out of the recovery, of course it would be very positive for gold from a safe haven perspective.  (“Gold 'Absolutely' A Safe Haven - BMO Analyst ,” Kitco, 2/26/15.)

Commodity Analysts: Gold Prices Expected To Rise In the Next Two to Three Years

Two prominent commodity analysts forecast higher prices in the coming years due to the Federal Reserve’s interest rate policies:

Francisco Blanch, commodities analyst at Bank of America Merrill Lynch told CNBC “if you look out 2-3 years, things are a lot brighter for gold…There are a growing number of government bonds basically yielding zero or negative.   As the number increases, I think a lot of investors are going to wonder why they are holding a liability as opposed to holding an outright asset like gold…”  

“Victor Thianpiriya, commodity strategist at ANZ, also expects the previous metal to break out of its tight trading range two to three years from now. ‘Once the Fed hikes are out of the way, we have a base for gold to recover.  There’s scope for gold to rise to $1,500-$1,600 within the next two years.’”  (“Gold trade coming back, if you can wait 2 years: BofA,”  CNBC, 2/25/15.)

American Advisor Week In Review

Goldline provides a wrap-up of the week's precious metals news along with important commentary on the American Advisor Week in Review audio program: Is the era of dollar dominance ending? Listen to Joe Battaglia discuss China's plans for a Yuan dominated gold fix. Listen to the show below:


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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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