Will gold price increase due to demand on year end?

While checking out a few Pamp Suisse gold bars in Malaysia recently, I have a chat with the manager of the goldsmith shop.

That was just a few days ago, when the spot gold price was about $1640 per Troy ounce.

I was very tempted to buy the Pamp Suisse gold bars, especially the 100 gram gold bar.

The markup was about 20% over spot rate.

It was considered relatively low, since Malaysia did not have a sales tax.

Over here in Singapore, the sales tax of 7% will hike the gold price higher.

The problem is that I have to declare and pay the sales tax if I bring the 100 gram Pamp Suisse bar over to Singapore.

The manager was a very experienced guy.

He was not pushy at all, but every word was calculated to make sales.

For example, when I hesitated to buy, he said that based on his experience, the gold price would increase due to demand on year end.

The period from Deepavali to Chinese New year is traditionally a period for the surge in gold price.

He was talking about the price of physical gold, but the spot rate might increase substantially too.

The demand comes from the major consumers in the world.

For example, Deepavali is a major festival for the Indians, and Indians love gold.

Christmas is a major festival for the Christians, and buying gifts is part of the custom of Christmas.  Even though not many people will buy gold bar, they would buy items that use gold as a raw material.

For example, jewelries contain varying degree of pure gold.

Chinese New Year is definitely the most important festival for the Chinese.

Wearing gold jewelries is part of the custom.

It makes sense that demand for gold during year end will push the gold price up.

However, I did not buy the 100 gram Pamp Suisse gold bar.

When I asked about the buy back policy, he mentioned that the shop would buy back at spot rate.

That means the moment I walk away with the 100 gram Pamp Suisse gold bar, I have made a 20% loss.

Theoretically, I can sell to private collector at a premium over spot rate.

The problem is that if I buy the gold bar in Malaysia, the investors in Singapore may not want to buy it.
100 gram Pamp Suisse gold bar is not the easiest item to liquidate.

While there are smaller sizes of Pamp Suisse gold bars, the premium over spot is too high for profitability.

After a night of sleep, I decided not to go ahead with the purchase.  If it is a mistake, then let it be.

The only question I have is: will gold price increase due to higher demand on year end?  If yes, by how much?

I would be surprised if spot gold price increases to $2000 per Troy ounce.  The current price is just slightly over $1700.

With the market sentiment, when investors stand on side line, it seems too optimistic to expect gold price to go beyond $2000.

Historical gold price chart

It is important to check the current gold price per ounce if you are interested in gold investment.

It is equally as important to check the historical gold price chart before you make a buy decision.

Why is that so?

For example, the recent gold crash sends the price of gold from $1900 per Troy ounce to $1600 per Troy ounce.

It presents a buying opportunity for those who are cash rich.

But is that the best price to buy gold in 2011?

If you take a look at the historical gold price chart for year 2011, you will find that the average price for this year is $1539.79.

That means even though the price of $1680 (correct as of today) is very low, compared to the peak in this year,  it is still higher than the average for this year.

Nobody knows when or if the price will fall below the average.

However, the long term trend is that gold price will keep going up, until the factors that caused the increase are eliminated.

The short term trend is less certain.

It is as likely for gold to go below $1600 or above $1700 in a matter of days.  One of the deciding factors is the strength of the US dollar.

Another factor is that of global fear.

When something happens to send a shock wave across the world, you can expect the gold price per Troy ounce to reach a new high.

The event can be anything from an earthquake in a major city to political crisis or oil crisis.

If you want to buy gold now, you may want to use part of the money to buy.

When you see that the daily price is lower than the average for the year, that indicates the best time to buy gold.

When you read a crisis that sends stock markets crashing round the world, you can watch the gold price closely, and decide on a selling price.

No point entering the market to buy gold when price is getting crazy.  You are more likely to get caught when the bubble burst than to make a killing in precious metal trading.

Everyone expects to make money from gold investment, and they expect to get lucky.

However, luck is not a reliable factor.

Knowledge is more certain to create profits for you.

Checking the historical gold chart before you buy gold is a good habit.  It is as important as checking the current price.

Will gold price increase?

After the spectacular fall of gold and silver prices, the question now is: will gold price increase?

The current gold price of $1625 is way below $1900, which was the gold price of just a couple of weeks ago.

In short, the answer is that gold price will increase, but the question is when.

Part of the reason for gold investment is the high inflation rate.

When inflation rate is high, and interest rate is low, people need to park their money in an asset that can retain value.

That is the reason for the confidence in precious metal investment.

The high inflation is still affecting people in different parts of the world.

Another factor for the confidence in precious metals is the declining value of US dollar.

In recent weeks, the US dollar has appreciated against major currencies of the world.  Part of the reason is due to the Euro fear.

The forex traders sell off Euro, and buy US dollar.

The problem is that the rise in US dollar is not sustainable, since the high employment rate in US is not going to end soon.

US government can start to print money again in a bid to stop the currency from appreciating.

When that happens, the price of gold will definitely increase.

The problem is again: when?

A low gold price and a strong US dollar obviously do not help the US government to shrink the value of its debt.

It is a matter of time for the government to look for the easy way out by printing money.

The unknown timing factor is the reason why investors are not buying or selling gold right now.

If they buy now, they are afraid that gold will fall further.  The sentiment of the market seems to separate investment from logic.  The market is looking for a cue from the large funds and governments.

The current gold and silver market is stagnant.

For those with cash on hand, it is time to start buying.  But bear in mind that the price of gold and silver can go either way, so the best course is to use dollar cost averaging method.

If the price goes up, buy a bit later.  If the price goes down, buy more at lower price.

The only certainty is that gold price will increase.