Want to buy gold?

Capital suggestion
Over the past four years the yellow metal has lost 40 percent of its glitter. The international price of the sought-after precious metal has come down from $1,899 an ounce in September 2011 to a current price of around 1,100 an ounce. Time to buy? Is it?
We have been extracting gold nuggets for the past 6,000 years and have hoarded some 175,000 tons of gold so far. At the going rate of about $34 million a ton our accumulated hoard is worth around $6 trillion. Since only 10 percent of new gold production is consumed by industry a good 90 percent of all gold ever extracted is still lying around either in jewellery (50 percent) or in investments (40 percent). Read: gold has little or no intrinsic commercial value (yes, a typical cell phone contains around 50 mg of gold worth about Rs50).
Is it time to buy gold? Consider this: the number of Americans filing new claims for jobless benefits has gone down to a 15-year low meaning that the US economy is picking up steam. American wages are rising and so is consumer spending. Consequently, the US dollar is surging and investors are selling gold and buying dollars.
Furthermore, the consensus on the Wall Street is that US interest rates are headed up – that means an even stronger U.S. dollar. And investors invest in assets that are expected to go up in value – that means more gold selling and even more dollar buying.
Is it time to buy gold? Consider this: China is the largest consumer of gold and China’s manufacturing sector is losing steam fast. On July 20, gold lost a wholesome four percent of its value in a few seconds. Reason: China sold five tons of gold on the Shanghai Gold Exchange in a “two-minute window just prior to 9:30 am”.
Is it time to buy gold? Consider this: Iran-under-sanctions has been using gold as a medium of exchange with some of its international trading partners (particularly Turkey). After the Joint Comprehensive Plan of Action (JCPOA), the Iran nuclear agreement signed on July 14, Iran will not be relying on its hoard of gold anymore.
Is it time to buy gold? Consider this: On July 20, the Greek government repaid two loans to the IMF and the European Central Bank (ECB). On July 20, Greek banks re-opened. On July 23, the Greek parliament approved the bailout package. Consequently, gold prices weakened further. Remember, gold prices tend to go up during times of economic uncertainty. So, good news on Greece is bad news for gold.
Is it time to buy gold? There is a fine distinction between speculation and investment. Speculation is the “practice of buying and selling in an attempt to profit from fluctuations in the price of a commodity.” Investment, on the other hand, is the action or process of buying an asset for long-term profit.
My advice: do not speculate on the price of gold but think of investing in gold. Is it time to invest in gold? The buy-signal that I use is a 25 percent to 30 percent discount to the cost of production. According to the World Gold Council the average industry cost of production is $1,200 an ounce.
“Praise, like gold and diamond, owes its value only to its scarcity” – Samuel Johnson
The writer is a columnist based in Islamabad.
Email: farrukh15@hotmail.com. Twitter: @saleemfarrukh