c:A Brave New World for Commodity Gold

Get your neighbor to buy his wife two golden necklaces, not just one


By Alex Strzetelski
It is becoming a brave new world out there for those deciding it is time to play the commodity gold markets. Commodity gold buyers are excited as exchanges around the world ramp up, new funds are approved and every day investment houses offer the ability to buy the physical metal and have it shipped directly to your door.

Where, in the past, buyers of precious metals found themselves buying stock in a particular metal mining company they are now seeing the benefits of having the actual metal in their hands. They do not need to study the inner workings of a stock and worry about mismanagement or other budget line items (extraction v. price) that are waiting to bring the company down.

Who’s buying the gold?

In today’s commodity gold markets investors are learning more about the supply and demand of their favorite metal. If demand goes up or supply goes down you have a positive direction in the price of the metal (all else being equal up 22% in 2006.) Ah…you say, what could be more simple? Quite a few things as it turns out; but generally they tend to be positives if you own the commodity gold outright. If an unstable government nationalizes a gold mine or a leading economy stumbles, limiting supply, the gold stock may be hurt. If, however, you own the commodity gold prices may increase due to a shortage (all else being equal.)

It all sounds rather simple but in reality these are things that gold stock companies need to deal with every day. In today’s commodity gold market, however, the easy access to the physical metal has changed much of these worries. Instead of thinking about the bottom line of a stock based company you readily see more direct matters affecting your investment. It really comes down to; is the guy next door going to buy gold for his wife? Or, is it going to be a good Christmas or a bad Christmas?

The Season to Buy

In figuring out when to buy there are several countries and several seasons to pay attention to. In this instance we are looking to make sure that demand is increasing or at least staying even. The fourth quarter of the year is the place to start with holiday spending on jewelry at its zenith in most parts of the world. Then the first quarter of the year comes into play with the wedding season in India beginning to ramp up and the Chinese New Year occurring, all big gold buying periods. The second and third quarters are a bit slower although festivals are occurring everywhere and traditional tourist locations take advantage as they can.

India is by far the leading demand country to watch with Chinas’ population and expanding economy sure to become a rival in the very near future. Gold demand in India is largely a traditional affair with the metal being recognized as a particularly good way to store wealth and keep a new wife happy and secure after the wedding. It is here, in India, where you will be able to gauge how gold is doing. You should, however, be sure to factor in the price sensitivity that is found in India’s penitent for 22 caret gold, most of which is imported. The United States is the second gold market to watch consuming an estimated 350 tones compared to India’s 550 tones. Unlike India’s reasons for gold purchase the USA consumes a majority of its gold as gifts. As a result retail competition plays a real factor in its gold pricing and use, so again regional global pricing must be observed and analyzed as such. In 2007, however, value is up and demand will continue its pull.

Commodity gold is looking Up

Supply and demand, a good way to make investing in commodity gold easier than buying a stock involved in the same business. All-in-all it is really the same idea. The investor just needs to pay a little closer attention to a differing set of variables. Instead of the minutia of a balance sheet you need to keep track of how much is being sold and its price on any given world market. Generally though, it is the same dog just a different set of fleas.