Gold: Moving In The Right Direction!

By: Peter Zihlmann | Tue, Apr 29, 2014
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Up-date N° 33 / April 29, 2014

Gold/Ounces in US$
Buy Date Amount Buy Price Total (USD) Price Today Value Today
November 7, 2002 100/oz. 318.90      
Total 100/oz. 318.90 31‘890 1305 130,500
Profit   98,610
Profit (in %)   309%

2004 to 2013: From bear to bull

Gold Chart

While central banks endeavour to maintain the confidence in paper "money" and try to avoid a spike in the gold price, central banks have in fact become net buyers of gold since 2010. They do this in fact at a pace not seen since the early 1970s. In 2012, Central Banks bought over 500 tonnes.

In the ten-year span from 2002 to 2012, the shift from net sales to net purchases was over 1,000 tonnes per year, an amount greater than one-third of annual global mining output.

Taking into account all national central banks, exclusive the IMF, official gold reserves increased 1,481 tonne from the fourth quarter of 2009 through the first quarter of 2013. Central banks have become significant gold buyers and the movement is from west to east.

China, e.g., is actually accumulating gold in smaller quantities over long periods of time, reporting the changes in a lump sum on an irregular basis.

China may announce their present gold holdings in the near future and many experts believe that the figure could exceed 4,000 tonnes of gold in official reserves. China would become the second biggest gold holder after the US. This will be a demonstration the gold is indeed money.

It is a well-known fact that there is strong demand for physical gold yet there is the simultaneous weakness in the price of gold futures traded on the COMEX exchange. A spike in the gold price would signal that our financial system is about to collapse, a situation which central banks want to avoid at all cost. At the same time, those central banks that accumulate gold are happy to do so at low prices. Pay-off will come later.

Gold Chart 2

Corrections in the past have set the stage for significant increases in the gold price as happened between 2006-2008 and between 2009-2011. A similar increase seems to be likely in the near future, possibly triggered by the announcement by China how much gold the country holds.

First, there are a few basic facts that one has to know about gold:

  1. Money is gold, and nothing else (J.P. Morgan, 1912)
  2. Gold has unique qualities because of its purity, uniformity, scarcity and malleability.
  3. Gold is not a derivative.
  4. Gold is not a commodity because of its limited industrial use.
  5. Gold is not an investment as it has no return.

Should you rather buy gold shares instead of gold?

  1. No: you need to have both!
  2. But there is no gold unless mines produce it.
  3. When the price of gold goes up, prices of gold mining shares will go up much faster.
  4. Furthermore, gold mines have the potential to increase reserves and resources, making them more valuable.
  5. The best way to invest in gold stocks is into a diversified portfolio through an investment fund like the Timeless Precious Metal Fund or the Sierra Madre Gold & Silver Venture Capital Fund.

Sierra Madre Gold/Silver

Gold sometimes outperform gold shares, at times however gold shares fare much better? Following some figures:

Big companies or rather "juniors"?

Goldcorp Chart




Peter Zihlmann

Author: Peter Zihlmann

Peter Zihlmann

Peter Zihlmann

Chairman of the Board, domiciled in Zurich, Switzerland

Majority shareholder and CEO of P. Zihlmann Investment Management Ltd (the Investment Manager), with over thirty-years experience as an asset manager with different prime banks, and since 1994 CEO of P. Zihlmann Investment Management Ltd.

Your independent Swiss asset manager


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