The underlying bullish forces to push gold prices higher remain constant.
Demand for gold reached an all time high in 2011, despite the unwavering fears of recession around the globe.
Central banks of major nations snatched up physical bullion like hotcakes. Purchases soared from 77.0 tonnes in 2010 to a mind-boggling 439.7 tonnes last year.
The stockpiling clearly reflected the banks’ needs for asset protection, reduced reliance on one or two foreign currencies, the rebalance of reserves and ultimately to protect national wealth.
Demand for gold bullion also took off in rabid countries like India and China as the two nations combined accounted for 55% of global jewellery demand and 49% of global demand in 2011.
Chinese dealers have even gone as far as to offer a new novelty service: gold vending machines.
And no, that is not a typo.
Shoppers on the Wangfujing Street in Beijing can now insert cash or use a bank card to withdraw gold bars or coins from the newly unveiled machine. The offerings range in weight and are based on market prices which update every 10 minutes.
There are now plans to install 2,000 of the machines in banks and high-end hotels over the next two years.
This is definitely a new era for precious metals.
According to the World Gold Council, gold demand grew 0.4% in 2011 despite a 28% year-over-year increase in bullion’s average price.
And China and India will continue to spearhead the charge over the long term.
Needless to say, demand isn’t going away anytime soon.
And Then There’s The Threat Of Good Ol’ Inflation…
Although the hyperinflation scenario that gold bugs have been predicting for years hasn’t surfaced yet, the threat of it happening still remains.
During gold’s ascent last August, China’s inflation rate was running at over 6.2%. It fell to a 15-month low of 4.1% in December, but has been inching back up ever so slightly.
Brazil was trying to cope with a 7.23% inflation rate in August as well. It too is experiencing a rate decline currently, but the pendulum could swing back at any time.
Indian inflation was even worse at 9.78%. But by February 2012, the rate fell by nearly half as a healthy harvest helped manage inflation in domestic food prices. However, that’s hardly a stroke of long-term confidence by any stretch of the imagination.
And though Euro zone inflation was only 2.5% in August and September, this figure rose to 3.0% for the remainder of 2011.
Looking at today’s most recent rate, the Euro zone has returned to near 2.5% – but all that’s needed is a spark to easily shoot back up.
And look no further than Greece to pull the trigger…
Greece’s recent completion of its sovereign debt swap will reduce privately held Greek debt by 53.5%, which European nations (and the rest of the world for that matter) hope will finally stem the bleeding.
The day the deal went through; it sent the Euro in retreat.
If their currency continues to weaken, European inflation is inevitable.
And this has global implications.
Gold will have nowhere to go but up.
Ignore The Short Term, Bet On The Long Term
I believe the fundamentals for gold haven’t changed.
So who cares about temporary negative factors when a massive bailout just took place in Europe?
The markets are so emotional and completely out of whack, it’s ridiculous.
But it’s also a wonderful opportunity.
Whenever a scenario like this comes up, it’s time to drop everything and load up on attractive and undervalued precious metals at fire-sale prices. You may want to average down right now, or if you’re new to the market, you may want to buy in on the dips.
Prove the prophets wrong… stay long gold.
for Top Stock Millionaire