Gold Buying Surges On Price Correction

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Includes: GDX, GLD
by: Disruptive Investor

The gold crash might have resulted in panic for some investors. However, there are others who are mopping up gold, and considering the current decline to be a great buying opportunity. I have been on the bullish camp, and I discussed the reasons for not selling gold in one of my earlier articles. In this article, I discuss the post crash buying trend in gold, which is an indication of the point that investors do perceive that gold will again trend higher in the medium to long-term.

As reported, investors and ornament lovers in India mopped up 10-15 tonnes of gold within three days of decline in the precious metal. Readers might argue that buying gold in India is more an ornament consideration than an investment consideration. However, the buying would not be rampant if a further decline in gold prices was perceived. Further, there has been buying of gold coins and bars, which underscores the point that Indians are increasingly looking at gold as an investment or currency.

In the United States, Zero Hedge reported that the U.S. mint sold 63,500 ounces of gold in a day, which happens to be a record. According to the website -

According to today's data from the US Mint, a record 63,500 ounces, or a whopping 2 tons, of gold were reported sold on April 17th alone, bringing the total sales for the month to a whopping 147,000 ounces or more than the previous two months combined with just half of the month gone.

Therefore, even investors in the U.S. are looking at the current correction as a buying opportunity than considering it to be an end to the bull market for gold. Commodity guru, Jim Rogers also considers the correction healthy and is looking to buy gold on further correction.

The important point I am trying to make through these examples is that the global appetite for gold has not declined after the crash. Instead, investors are taking the correction positively and looking to buy further instead of panic selling. Considering this buying momentum, I don't expect another major downside from these levels. I had written an article, which discussed the probability of a 10-15% correction in gold. For me, that target is achieved and I would consider buying some physical gold at these levels.

I would also like to offer the views of the World Gold Council on the recent decline in gold prices. The comments by the WGC underscore my points stated above. According to the WGC -

It has become increasingly clear over the course of the past week that the fall in the gold price was triggered by speculative traders operating in the futures markets. Their short-term view of generating a trading profit is in stark contrast to the views of long term investors in gold, as evidenced by the massive wave of physical gold buying that began over the weekend and accelerated following Monday's further decline. The surge in gold purchases is spanning markets from India and China to the US, Japan and Europe. Buyers are viewing this as an opportunity to purchase gold at prices not seen in the past couple of years.

Surely, for long-term investors, it is the time to accumulate gold. Of course, gold should be just a part of the portfolio and diversification is needed in order to avoid sharp erosion of capital due to the volatility witnessed. Talking about volatility, the movement in all asset classes subsequent to the crisis has been associated with a large degree of volatility. Therefore, diversification in asset classes and regions globally is essential.

For gold, investors can consider this as one of the best opportunities to buy and hold for long-term. I am not sure about the short-term trend. For the long-term, I can say with a lot of conviction that gold will trend much higher than its previous high.

As mentioned before, buying physical gold is the best option. Investors can also consider these ETFs:

SPDR Gold Shares (NYSEARCA:GLD) ETF. The investment seeks to replicate the performance, net of expenses, of the price of gold bullion.

The Market Vectors Gold Miners ETF (NYSEARCA:GDX) is another good investment option for long-term. The ETF seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the NYSE Arca Gold Miners Index.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.