Gold’s Down 5% — Here’s What Happens Next!
Gold hasn’t found a lot of love lately.
While stocks, as measured by the Dow and S&P 500, have been hitting new highs in recent weeks gold is moving in the opposite direction.
Gold prices are down about 5% since the highs of early September. Meanwhile, the S&P 500 has jumped over 7% higher over the same period.
Here’s the Big Question…
Are we seeing a reversal of fortune for gold relative to stocks, or is gold’s weakness just temporary?
Strong fundamental factors suggest the pullback in gold prices may be temporary and is a great buying opportunity before the next surge in gold prices. Here’s why…
Let’s start with the bullish demand side of the picture for gold…
As you can see in the chart above from the World Gold Council, retail demand for gold-backed ETFs just hit a fresh record high this year. In fact, ETF holdings grew by 258.2 tonnes (t), to an all-time high of 2,855t in the third quarter of 2019.
That tells me the average investor isn’t spooked by the recent pullback in gold prices. In fact, they’re buying into it, and that’s a bullish sign!
Supply-Side Factors Are Also Bullish for Gold
There’s been a slight 10% uptick in gold recycling last quarter, due to higher prices. But that’s just a drop in the bucket compared with overall global gold supply, which remains tight as a drum.
The biggest supply-side factor by far is gold produced by the global precious metals mining sector.
And as you can see above, mined gold supply remains virtually flat-lined over the past four years. In fact, mine production of 877.8t last quarter was unchanged on a year-over-year basis.
Bottom line: With gold demand continuing a solid uptrend and global gold supply basically flat it tells me the demand/supply balance will soon tip in favor of higher gold prices.
When that happens, I expect high-quality gold mining shares to explode again to the upside as well. Be ready!
Here’s to growing your wealth,