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Why Investors Should Still Believe In Gold - ADM Investor Services


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Why Investors Should Still Believe In Gold - ADM Investor Services

Friday January 22, 2016 12:42

(Kitco News) - Although the equity-market volatility, which has helped boost gold prices, seems to have calmed Friday, analysts at one futures firm say there still is a bullish case for the yellow metal, especially when looking at demand.

Analysts from ADM Investor Services, a Chicago-based futures commission merchant, argued that bull markets in commodities, particularly metals, tend to be “demand-driven.”

“And exceptionally so in the case of precious metals,” they said in a research note Friday.

The analysts started off by questioning why investors would still consider gold when there are a multitude of other commodities that are more attractively priced.

“The answer is demand,” they said.

They explained that as demand picks up, supply tightens and this presents a bullish case for gold. And, according to the analysts, gold availability has been tightening.

“We saw this in the ever-more-severe squeezes taking place during futures delivery periods. And we really saw this tightening in the conspicuous (and still-constricting) tightness in the cash market--- extending out a full year,” they noted.

The analysts pointed out that gold demand staged a “recovery” in the second half of 2015. Based on the latest data released by the World Gold Council, third-quarter gold demand reached a two-year high of 1,120.9 tonnes and was up 8% year-on-year.

So far this year, demand has picked up as well as investors seek refuge on the back of turmoil in financial markets. “From Day 1 of the New Year, global equities came under pressure and--- as stock market losses accrued--- asset allocators began to sense that this was not just another buy opportunity,” they said.

Initially, investors searching for a safe haven flocked to gold-mining shares over bullion, they explained. The gold longs -- in mining stocks – soon got “cold feet” as equities continued to tumble and, as a result, bullion prices fell as well. But eventually, the lower prices presented a reason for gold demand to pick up.

“On this dip, large-scale buying interest emerged,” they said. “Day-to-day, bidding has intensified (and then moderated) in response to the downs (and ups) in the U/.S. dollar. But $1,080/oz and below seems to be developing into a viable near-term zone of support.”

Gold futures managed to hold ground Friday as equity markets stabilized. February comex gold futures were last quoted up $1.20 at $1,099.40 an ounce.

The analysts noted that asset reallocation flows into gold are “decidedly bullish” but because of swings in global risk markets, there may still be risks involved with holding gold.

“Invariably, FX swings complicate the task of risk and portfolio management in gold, whether they derive from a shift in relative interest rates (the norm) or from extreme price moves in crucial export commodities.”

Although there still is a bullish case for gold, the analysts warned that bulls need to be “especially wary” to avoid buying on strength and to be sensitive to over-extended price action both in gold and in related markets.

By Sarah Benali of Kitco News; sbenali@kitco.com
Follow me on Twitter @SdBenali

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.



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Kitco should market gold & silver as a currency hedge and cite the current examples of Venezuela, Brazil, Russia, Canada, and Japan. It's obvious to numbers crunchers and also defines the true purpose of PMs. And takes the speculation out in times of severe uncertainty.