3 signs investors are fleeing gold

Is it a temporary bump in the road or the beginning of the end? Either way, there are worrying signs that investor interest in gold and silver is waning.

We believe the trend is temporary, but there are worrying signs that investor interest in gold is waning. Here are three:

1) ETFs are pouring physical gold into the market. The impact of gold and silver ETFs on bullion prices cannot be understated, and last year, gold ETFs saw the lowest level of bullion intake since their inception in late 2004 (per IBTimes). That’s worrying enough, but in 2012, gold-based ETFs are actually selling off more gold than they’re taking in. That’s flooding the market with physical gold. Already in April, ETFs have sold off more than six tonnes of gold.

2) “The froth is coming off.” Pundits and authors have started venturing into the press with warnings that the gold and silver “bubble” is about to pop. One of the leaders of the bubble camp is Yoni Jacobs, author of Gold Bubble: Profiting from Gold’s Impending Collapse – a book that hit shelves yesterday. “The froth is coming off,” he says in a recent interview.

His reasoning for sounding the warning bell? Sellers have started out-numbering buyers. Last September, when the bottom fell out under gold prices, volume was extremely heavy – and that’s a bearish sign for the future. In addition, gold mining stocks are performing like gold’s glory days are long since past. The Market Vectors Gold Miners ETF (GDX) is down 20 percent over the past six months while the Gold ETF (GLD) has essentially stayed flat.

3) India’s government is trying to put the brakes on gold consumption. The government of the world’s largest gold consumer and importer is attempting to slow gold imports and consumption via taxes. The country doubled gold import duties from 2 percent to 4 percent. In addition, they’re levying a 0.3 percent tax on gold jewelry as the country’s struggling to contain a growing trade deficit.

The new taxes and the weak rupee have collided to push down gold jewelry and bullion sales by as much as 70 to 80 percent on a daily basis, per the Economic Times. “The demand is almost negative compared to previous years,” Ashish Mundhra, director of Chennai-based Mundhra Bullion, told the paper.

Still, not every agrees this is the end of the end for gold. And we definitely don’t either. In fact, we see this as one of the best time to buy shares in gold and silver mining stocks. We could be wrong, but we don’t think the U.S. economy is out of the woods yet. And with Bernanke at the helm of the Federal Reserve, we’re a lot more nervous about the future of the dollar than we are over the future of gold and silver.


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