Rise and fall has always been a norm of markets and after every bust, an irrational investor is blamed for a market crash. The precious metal market has also experienced a boom and bust in different periods. However, a recent bust in a metal market is not only surprising but is also raising question marks in the mind of every investor. The major question they have right now is whether a recent decline in gold, silver and platinum will reverse and the market will again reach a record high.
A famous philanthropist, an investor and an American business tycoon, Warren Edward Buffet, once said: “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” This is true because unlike oil and copper, it cannot be effectively utilized and it does not even pay a dividend.
If you analyse a recent market trend, it is still declining. Bust in the precious metal market was observed a couple of months ago in April 2013. The experts believe that the reason for this sharp decline can be due to a gradual and steady improvement in financial market along with the news of Cyprus selling their Gold bullion reserves to pay back their debt. This instigated the investors of the Euro zone countries who also sold their massive reserves consequently.
However, a massive decline in a precious metal market is not so unusual anymore. The actual news that needs consideration is a lost connection between precious metal paper prices and a continuing boom in buying of gold and silver. It has been observed that medium sized investors are still buying physical precious metal like gold and silver in the form of coins and bullions. So why there is a high demand for the purchase of physical metal and falling prices of metal paper? Your Personal Financial Mentor always tells you to invest and diversify to minimize your loss. It can be said that physical market is gradually falling and will eventually suffer a decline as well but this does not seem to be the case. According to the owner of southland coin, he observed that his customers were buying more and were taking advantage of low prices in the market. He believes that people don’t trust the government and want to save the physical form of metal because of the distrust in a value of paper.
It is obvious that people are scared because they have experienced a sharp decline in the Technology industry along with the recession in 2008 that led to a worst market crash. They lost their homes and cars during that period and therefore they don’t trust the recovery. On the other hand, it has been observed that banks around the world are constantly flooding the economy globally. Although, inflation metrics are showing no fluctuations yet it does give rise to an inflationary environment.
For now, bust continues to sustain in a precious metal market but the investor will find an answer soon enough. If paper gold market continues to fall while the physical acquisition of precious metal continually increases, this can be a serious indicator that can set a trend for a new bull market in precious metal.
Categories: Precious Metals Market