The Shanghai Gold Exchange Gold Fix

Gold Prices Drop – Why this is a buying opportunity

Gold prices may be in the midst of dropping but this presents investors with an opportunity to buy the precious metal. Banks are lowering their short-term projections, the media is painting an obnoxious portrait, and the notion is excessively negative. But does it mean you stay away from the gold? By all means don’t. In fact, the main reason the gold crash should be converted to a gold rush is that the best time to acquire an asset is when it’s cheap. If you buy it at low prices, then the greater the magnitude of its prospective returns.

Gold has been experiencing a fall in its price for what can be depicted as a prolonged period; from previous market analysis, the longer the period of decline, the greater the recovery. Additionally, gold tenets experience positivity – a prime catalyst which will drive the price up again. In many ways, this period in the gold market resonates with the mid 1970s scenario, where the gold prices dropped greatly in 1975 and in 1976 the market saw a drastic ten times increase gold prices.

This gold price fall is healthy, and represents one of the greatest buying opportunities for bullion dealers. The media is presenting the story of a huge US economic salvage and emergence of a goldilocks economy but a glimpse at the real world statistics for unemployment, sovereign debt, and the US trade information offers a much uglier picture than that portrayed by Bloomberg, CNBC, and others. This is reminiscent of a strong run up in the Dow Jones and further forward advancement of stocks depends solely on the Federal Reserve to renew its commitment to QE. If this is not done, then the stock market should be prepared to hit a brick wall.

If you are on always on the lookout, the rush for purchasing gold is now at its peak; it’s a store of value for an unlimited amount of time, highly liquid, and the best available shield against geopolitical risks and inflation. Owning such physical gold will take your investment to the next level as it gives you the legal title and physical ownership to this precious metal, eradicating any possible risk that is associated with paper investments such as the counterparty risk.

For physical commodities we always have to keep in mind that the price action has real supply and demand impacts on the physical market. The prices of gold falling has both fueled the investment demand for the precious yellow metal and affected its supply to the market. Many mines do not have the commercial viability to extract gold out of the ground at the prevailing prices, thus leading to supply cuts. In order to attain price equilibrium, a standard commodity market will rally from here strongly.

When it comes to the gold market, other forces usually take part that not so many can fully understand. To make matters worse, the central global benchmark price for gold is set in a paper market, and not physical market – as you may expect. The paper price has different dynamics and rules to the real physical market; in case of the paper market, no physical bullion can be exchanged and there is unlimited supply, therefore, making the participants sell unlimited amounts into the market. Having the physical market limited in supply while the paper market unlimited, the imbalances between the two markets slowly comes to light.

These disparities have become so substantial over time that you cannot fail to notice the irreparable cracks in the paper market. It’s noteworthy to mention that it’s evident that you will see the core gold price benchmark move far away from the paper market to embrace the physical market. This places the physical market on the lead on its function to discover the price of the entire precious metals family. It’s true to make the assumption that you should prepare for the coming massive structural reform that will benefit the precious metal investors. The physical markets cannot be repressed forever and you will be happy to witness the price unleashed and wholly dependent on the forces of demand and supply.

With the evident hovering of the gold prices in the market, any bullion dealer sees a great opportunity to invest in the physical market. Such opportunity should be able to interest you and grab them with open arms while you wait for upward price correction. Eventually, the price of the gold will rise back to where it started and to some extent even further so the time is just right to invest in some.