Demand For Physical Gold Will Send Prices Above $1,500

Includes: AGI, GLD, SAND, SLV, WPM
by: Steve Nicastro

Predicting the short-term price movements in gold (NYSEARCA:GLD) has proven to be an impossible task. Previously, I had predicted that gold would surge up to the $1,500 mark by November's time. I based my analysis on several macro developments I saw as bullish for gold, including the non-tapering announcement which had predicted and a debt ceiling crisis which in 2011 had sent gold soaring to $1,900 an ounce.

However, the price of gold has not recently as positively to these events as I thought it would have, causing frustration for many gold bulls.

You'll see below that gold currently sits around the $1,300 mark:

(Click to enlarge)

Despite the current short-term weakness in the price of gold, there are still many reasons why I believe gold is due for a $1,500 breakout and eventually a much higher price. Nobody knows for sure when this will happen, but I believe it absolutely will.

October Non-Farm Payrolls Released

The U.S. unemployment rate ticked up to 7.3 percent, but the economy added 204,000 jobs in October, according to the October non-farm payrolls which were released Friday. This easily tops analysts' estimates of 120,000.

In addition, September and August were revised up by a combined 60,000, according to the Labor Department.

Some feel this was a strong report. If you look a little bit more into it, however, you will see some big warning signs:

- The underemployed and those who have quit looking for work also moved higher, from 13.6 to 13.8 percent.

"Overall, 11.3 million Americans were unemployed in October, a number that has remained steady for several months. In addition, many workers could only obtain part-time jobs.

A broader measure of unemployment that includes discouraged workers and those working part-time but who want full-time employment rose to 13.8% from 13.6% in September," Source: Wall Street Journal.

- The civilian labor force tumbled by 720,000 and the labor force participation rate fell to its lowest since March 1978, according to CNBC.

Meanwhile, over 46 million Americans remain on food stamps, up from just 27 million in 2008.

The bottom line is that this "economic recovery" doesn't feel anything like one, with so many people still out of work and giving up the job hunt, plus many who used to be full-time looking for part-time jobs.

The job numbers are deceiving, plus they only state the "quantity" of jobs added, not the actual "quality" of the jobs. What good are jobs to the economy if they are minimum wage, part-time or just unproductive jobs?

China Gold Imports Continues to be Strong

China imports of gold continue to be incredibly strong, even though certain financial headlines would make you think otherwise.

For example, "China Gold Imports Fall on Premium, Slow Demand" was a story recently published by Bloomberg. The numbers tell a different story:

"Net imports, after deducting flows from China into Hong Kong, were 109.4 metric tons in September, from 110.2 tons a month earlier, according to Bloomberg calculations based on data e-mailed from the Hong Kong Census and Statistics Department.

Still, the amount has more than doubled to 826 tons in the first nine months of the year, the data show."

So basically imports declined month over month by just .8 tons! Even more ridiculous is the fact that imports have now doubled to 826 tons for the first nine months of the year, and the fact that this number for September is far greater than the 69 tons imported a year earlier.

This chart below from ZeroHedge below tells the full story.

As ZeroHedge points out, "the gross imports year to date are now over 1,113 tons, 91.3% more than the amount of gold imported through September of 2012."

(Click to enlarge)

Last year in December, China imported their highest monthly amount of gold for the year, so it will be interesting to see where they finish this year.

The bottom line is that physical demand from China continues to grow and sees no signs of slowing down.

Turkey Gold Buying

China isn't the only game in town, as there are smaller nations continue to import gold as well.

Turkey is one of these nations. According to, Turkey has already imported 251.4 metric tonnes in 2013, and the country could surpass its record year in 2005 when they imported a total of 269.5 tons of gold.

India Gold Demand

Meanwhile, in India, demand remains somewhat strong even though the government has increased taxes and restricted shipments to deal with their account-deficit.

Gold retailers in Dubai are now expecting to see their sales surge by 50 percent this week as the five-day Diwali festival of lights continues, according to an article at India imported 23.5 tonnes in October compared with a record 162 tonnes in May.

Russia is Also Importing Gold

According to, Russia's official gold holdings total 1,014 metric tons in 2013, which is the 8th highest in the world. This is up from just 402 tons in 2004 and the number has increased every year since then.

In my view, gold central bank demand is far more of a factor in the gold price than individual investor demand, and investors should keep an eye on imports going forward.

Other Development in the Physical Market - For Both Gold AND Silver

According to report, sales of American Eagle gold coins by the U.S. Mint reached 755,000 so far this year, which already surpasses last year's total of 753,000.

The silver story gets even more interesting. Sales for the U.S. silver eagle (the most popular coin) has reached 851,005 in 2013, which has already exceeded last year's reported sales of 819,217.

Silver is arguably an even more attractive investment than gold because of its numerous industrial uses. Investors can get exposure to silver by simply purchasing coins or bars from local dealers or online at various dealers, or by the (NYSEARCA:SLV) iShares Silver Trust ETF.

Yellen Appointed as Fed Chairman

Janet Yellen was appointed as Ben Bernanke's successor as Chair at the Federal Reserve. This can be seen as very bullish for gold in the long-term because Yellen is considered by many to be even more "Dovish" than Bernanke, meaning that easy-money policies such as QE are more likely to continue in the years to come.

For example, a recent CNBC survey found that nearly 60 percent of respondents believe that Yellen will be more dovish than Bernanke.

Inflation Remains Weak

The U.S. inflation rate, according to the government, continues to remain well below the Fed's target (1.2 percent in September, after it was 2.1 percent on average for 2012).

I actually believe an increase in the size of QE is coming, and I maintain my belief that big inflation will be the result. Deflation continues to be the biggest fear of the Fed, so they will get the exact opposite.

When this inflation occurs is anyone's guess, but I believe it will definitely happen sooner or later.

The Dollar Continues to Be Weak But Will Get Even Weaker

The United States economy is a mess, plain and simple. The U.S. national debt continues to increase at an alarming rate, with no signs of slowing down. At current rates, the U.S. national debt will be well over $20 trillion by 2017.


Even though the government was able to come to a deal to raise the debt ceiling (yet again), the numbers show that we will most likely be in the same exact situation once again sometime early next year (likely by February).

What This Means for the Dollar and Gold

The financial health of the U.S. will have negative implications for the dollar in my view. The appointment of Yellen to the Fed also strengthens the case for a weaker dollar and inflation.

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The dollar index currently sits around 80.6 and the 50-day moving average crossed below the 200-day average in late September, a bearish technical indicator.

In conclusion, there are still many, many reasons to be bullish on gold. Even though the price has not reflected it yet, I believe gold will soar in the coming years and I continue to purchase a select group of gold and silver equities every month. My top picks remain gold streaming company Sandstorm Gold (NYSEMKT:SAND), silver streamer Silver Wheaton (SLW) and the mining company Alamos Gold (NYSE:AGI), among others.

Disclosure: I am long GLD, SLV, SLW, SAND. 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.