Investors Use Pullback in Gold to Increase Holdings

May, 9, 2011, Los Angeles – Gold bullion prices dipped 4.37 percent to $1,494.90 an ounce last week after the commodities sector saw its worst weekly slump since 2008, meanwhile, astute investors used the pullback in the gold price to boost their holdings of physical gold. The pullback in precious metals last week was not completely unexpected as the price of gold gained nearly 9 percent and the price of silver soared almost 29 percent in April alone.

In recent weeks, dollar weakness has been the primary driver of higher precious metals prices. The price of silver lost 25.45 percent, following several margin hikes announced by CME Group last week for silver speculators, to finish the week at $35.60 an ounce. The Gold/Silver ratio rose to 41.99, as silver under-performed gold.

The Macquarie Commodities Research team commented on the recent increase in central bank purchases of gold bullion, writing in a report that “Appetite for gold from central banks in emerging economies is pointing to a substantial potential source of bullion purchases.” The team continued, “The current shift in official sector purchases of gold is likely to be a mix of hedging against currency or sovereign debt risk, and given the excess accumulation of reserves, the profit motive is likely to be more important than it has been in the past.”

The Bank of Mexico is the most recent of the emerging market banks to be aggressively accumulating gold bullion. According to a report by the International Monetary Fund (IMF), Mexico has purchased over 93 metric tons of gold since January. When added to its existing holdings, a mere 6.9 tons, Mexico’s central bank now holds just over 100 metric tons of Gold bullion. “Mexico’s gold accumulation confirms the demand of emerging market central banks to diversify their reserves,” said analyst Bayram Dincer, of LGT Capital Management. “They will be the big buyers for years to come.”

Peter Morici, professor of business at the University of Maryland said recently, “The dollar is no longer a safe asset for backing currencies. Treasuries are not a sound investment,” said Morici, “Central banks have good reason to buy gold.” Investors began the week concerned that the death of Bin Laden could lead to retaliation from his followers and pushed the price of oil higher, but by the end of the week crude oil prices were under $100 per barrel, having dropped 15 percent for the week.

“There will be a fear, I think, in the short-term in the markets that something might happen in the next week or two,” said Michael Lynch, president of Strategic Energy & Economic Research. “I do think in the longer term, it suggests likely more stability in the Middle East.”

– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –

American Bullion specializes in adding gold and silver to retirement accounts. If you have a question or would like to know more about your investment options, please call American Bullion at 1-800-326-9598 to speak with a precious metals specialist.