Gold Sell-Off Continues, But Fundamentals Remain Strong

After the bounce in recent days, gold sold off again yesterday and was down 2.77% (silver -3.2%). After the falls seen in the last two weeks a period of consolidation will be needed and gold may fall further prior to rising strongly above the psychological and technical level of $1,000/oz.

With $50 trillion having been wiped off the value of assets internationally (primarily property and equities) there will likely be a long term shift towards risk aversion and wealth preservation. This structural shift appears here to stay for the foreseeable future and gold will be a beneficiary of this.

Investors would be wise to continue to “tune out” and ignore short term movements and focus on the big picture fundamentals of declining supply and very robust international demand for physical bullion. Gold likely remains in a secular bull market and corrections are normal and healthy. They force the weak hands out of the market and allow strong hands to increase their allocations providing strong foundations in order to support the next move up in prices.

This was seen very clearly in the 1970s and in 1976 when gold fell by some 50% (from some $200/oz to some $100/oz) prior to rallying more than 800% to over $850/oz in 1980. We believe that the recent correction will be viewed similarly in the coming years.

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