To anyone buying gold in June: your patience shall be rewarded

477Patient investors who buy when prices are at the low-point of the cycle always win in the long run. Historically gold prices are cheapest in June. Gold prices are at a low-point in their cycle. Buy while prices are low this month and your reward may come sooner than expected.

Why’s that? Did gold prices not fall $50 in the past week? Yes, gold prices are exceptionally cheap. Bullion billionaire Eric Sprott offers the following bullish thoughts in his latest missive:

1. The Gold Forward Offered Rate remains very low, with extended periods of time in negative territory.

2. Why is Germany’s repatriation of their 674 tonnes of gold taking so long? As of March 2014, only 69 tonnes had made their way back, a pace of less than five tonnes a month. If there is no shortage of gold, why are the US and UK exporting so much gold to Switzerland? (which itself exports most of it to China).

3. According to some estimates, China consumed over 4,800 tonnes of gold in 2013, implying that about 3,600 tonnes were drawn from global stocks (i.e. western vaults) to satisfy demand.

4. All this Chinese buying is reflected in the monstrous amounts of gold deliveries on the Shanghai Gold Exchange.

5. Dubai is building a new gold refinery capable of handling 1,400 tonnes, and current global gold refining capacity is about 6,000 tonnes (world mine production is less than 3,000 tonnes a year). Why would they need so much refining capacity if physical demand was not buoyant?

6. As the major gold miners cut back on exploration, future mine supply will remain constrained.

7. Another ‘temporary source of supply’ (900 tonnes) has been ETFs, which have been raided for most of 2013. However, they have now stabilized. Other things being equal in demand, where will that 900 tonnes of supply come from in 2014?

8. Interestingly, the Silver Institute, in its 2014 World Silver Survey, noted that there was a 96 million ounces shortfall in 2013 due to strong physical demand.

ArabianMoney investment newsletter readers have the benefit of more insights this month in a special item on gold’s historic performance in June

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