Paper & Physical Gold Rush from West to East; $1500 by Year End?

The week began with a surge in the price of silver, giving the white metal its biggest two-day gain since 2011. Now this morning, Bank of America Merrill Lynch reported the largest one-week inflow into precious metals funds on record – $4.1 billion in the week ending Wednesday.

The combination of the Brexit and the realization that the Federal Reserve isn’t going to continue raising interest rates has investors scrambling for safe havens. With gold and silver suddenly returning to the limelight, Bank of America Merrill Lynch is now forecasting the gold price to hit $1,500 by the end of the year.

Barry Dawes, Head of Resources for Paradigm Securities, told CNBC:

You’ve got to look at the long-term in gold, and out of the last few years we’ve seen really strong demand out of Asia. And that’s really sucked all the readily available gold out of the West and it has tightened the market up. The Brexit, to me, is a sideshow. Some people think it’s a lot more important. I just see it as a short-term thing. It basically means more people are coming into the market looking for gold, and they’re finding there’s not much there.

“So gold has got the potential to rally quite strongly. I think we’re certainly going to see $1400 quite soon. I think we’ll certainly see $1500 by year end, and maybe even that $1900 – test that previous high. Gold does have that ability to run very quickly…”

Western precious metals investors seem to be agree with Dawes’ view, if last week’s fund inflows are any indication. Of course, we’d argue these investors are missing the core message: “you’ve got to look at the long-term in gold.” Precious metals funds are okay investment vehicles to jump in and out of gold for quick profits, but over the long-term holding physical bullion is the wisest choice.

That’s why we recommend physical bullion over precious metals funds. Learn more in our free special report: Why Buy Gold Now?

Just as Dawes’ noted, it’s Asian investors who are really treating gold with its proper respect: they’re gobbling up physical bullion. In fact, BullionVault reported this week that the number of Japanese gold buyers rose 62% in the first half of the year, compared to the second half of 2015.

But that’s not all. The Japanese are buying this bullion and storing it in Switzerland. Atsuko Sato Whitehouse, head of Japanese markets for BullionVault, said:

Many of our Japanese customers think it’s too risky to hold gold bars at home and they want to keep them in Switzerland because they are anxious about the future of Japan.”

The risk Whitehouse refers to is the overwhelming Japanese public debt, which was grown to more than double the country’s GDP. Of course, Americans are no strangers to debt, as we’ve reported again and again.

All of these trends are just the beginning of what could become the perfect storm for physical precious metals. It begins with a wide variety of financial and political crises spurring investors around the globe to buy up gold and silver for safety. But while Westerners buy gold funds, the East acquires the actual physical bullion. When a full-blown international economic calamity actually hits, what do you want to be stuck holding – paper promises, or the real thing?

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