As U.S. States consider resurrecting the gold standard, and how gold and silver are now legal tender in Utah, with even the CEO of Walmart warning of serious inflation in the coming months, news comes out that the University of Texas endowment has just invested in $1 Billion dollars of gold, here’s a quick gold quiz to summarize some important points about why gold prices are soaring and why you need to start your own gold-backed savings account and buy gold today to hedge against financial crisis and inflation.
1) The main driver behind rising gold prices over the past decade is:
a) Increased jewelry demand in India
b) Greater industrial uses of the metal
c) Investment demand
Worldwide investment demand for gold totaled 44 million ounces in 2010. Because of the growing demand by investors, prices have been forced upward. Five exchanges began trading gold contracts for the first time in 2010, and three more introduced mini contracts, collectively the largest number launched since the early ’80s. There are now 24 gold vending machines in seven countries, with three more countries adding machines this year. Households in developing countries are now moving away from gold jewelry and buying coins and bars for their savings. Investment demand in gold and precious metals will continue to be very strong.
2) True or false: recovery from gold scrap was lower in 2010 than 2009.
Scrap rose three consecutive years in a row – until last year. Gold supply from scrap fell 2.1%, to 42.2 million ounces. This is significant because gold prices were higher, which would normally increase the amount of scrap coming to market. One of the primary reasons scrap dropped is because investors are holding on to their metal, reportedly because they believe prices are headed higher. Isn’t that one reason gold purchasers are holding on to their bullion?
3) There are many reasons investors have been buying gold over the past 10 years, but what is the #1 reason?
a) Safe-haven asset
b) Gold coins and bars have become more intricate, widespread, and beautiful
c) Supply and demand imbalance
Global fears increasingly led investors to purchase large volumes of gold in 2010 for safe-haven purposes, despite record price levels. High levels of investment buying are expected to continue in 2011 because virtually none of the economic, political, and monetary concerns have been resolved.
If you got all three answers above correct, you’re an individual who understands the basic reasons for owning gold and that those reasons are still in play.
4) Gold represented what percent of global financial assets at the end of 2010?
The estimated value of investor gold holdings stood at $1.5 trillion at the end of last year, about 0.7% of global financial assets. While up nine years in a row and triple what it represented in 2001, gold is still a miniscule portion of the world’s private wealth. It represented 2.8% of global assets in 1980, four times what it does today.
5) How many central banks increased their gold holdings in 2010?
Russia, Thailand, Belarus, Bangladesh, Venezuela, Tajikistan, Ukraine, Jordan, Philippines, South Africa, Sri Lanka, Germany, Kazakhstan, Mexico, Greece, Pakistan, Belgium, Czech Republic, and Malta = 19. Central banks as a group are expected to continue to be net buyers of the metal for the foreseeable future. It’s interesting that most purchases were from developing countries, unsurprising when you consider they’ve accumulated over $5 trillion in foreign exchange reserves just since 2002.
6) Compared to 2009,U.S. Mint gold coin sales in 2010 were:
a) Down 12%
b) Up 8%
c) Up 5%
d) Up 3%
The U.S. Mint sold 1.43 million ounces last year, down 12% from the 1.62 million ounces sold in 2009. You might think this is negative until you realize that global coin sales rose 21% last year, reaching 6.3 million ounces. Makes you wonder what other countries know that many North Americans don’t. Supply problems continue to plague the U.S. Mint, evidenced by the fact that Buffalo sales were suspended for half the year. What happens when the greater population begins to clamor to buy gold? Bottleneck, meet desperation.
7) CPM estimates that the fiscal and monetary imbalances, especially in developed countries, could take how long to resolve?
a) 1 year
c) 5 years
d) 2 years
Rigid social contracts are so deeply ingrained, especially in the developed world, that it will take decades to resolve the monetary imbalances. This sobering fact means gold will likely be in a bull market for many years to come. There are very few options to deal with the overwhelming debt burden in most of these countries: raise taxes, cut spending, increase growth, or print money. Guess which one is most likely? Inflation from currency dilution is baked in the cake and will spur further gold demand and light a fire under the price.
If you got these four questions correct, it means you’re an astute individual who doesn’t worry about day-to-day price fluctuations and instead focuses on owning enough ounces to protect your assets from the huge and intractable fiscal problems that still have to be faced.
What was the industry-average cash cost to produce an ounce of gold last year?
Cash costs have tripled since 2002 and rang in at $544 last year. They will certainly be higher again this year. In spite of higher costs for the producers, margins actually rose due to higher gold prices. Margins in 2010 averaged $680, and were only $114 as recently as 2002.
9) The average grade of gold mined on a worldwide basis last year was how much?
a) 5.11 grams/tonne
b) 3.54 grams/tonne
c) 2.96 grams/tonne
d) 1.83 grams/tonne
The second lowest level on record – 1.83 grams per tonne – occurred in 2010. While not entirely negative since higher gold prices allow producers to go after lower-grade deposits, this leads to higher costs for both discovery and production. It is undoubtedly true, though, that one of the main reasons grades are lower is because the easy fruit has been picked in many regions around the world.
10) The most popular region for exploration spending is where?
a) Latin America
Roughly 25% of all global exploration money is devoted to Latin America. The biggest beneficiaries are Peru, Mexico, Brazil, Chile, and Argentina.
If you got these three questions correct, you’re well in touch with the gold market, and I hope you’re taking advantage of this KB GOLD opportunity.
This data clarifies and confirms why many individuals own gold and continue buying it. It paints a decidedly bullish picture for the metal, in spite of record price levels. Monetary issues are far from over, won’t be easily resolved, and will take years to play out. Banks continue buying, and investors aren’t selling. The U.S. Mint can’t keep up with demand, and yet gold is underowned when compared to other major asset classes. Costs are rising for the producers, but margins are rising faster for the better-run companies.
When looking at the big picture for gold, I for one draw comfort from knowing I’ve got some ounces tucked away. I hope you, too, see gold for what it is – protection against unsustainable fiscal imbalances and massive currency debasement, and a profit center for years to come as well as generational wealth.