Advisor to Central Banks: “Buy Gold”

Release Date: 
Friday, February 3, 2017

Gold prices ended the week strongly higher, maintaining its gains above the $1200 mark.

“Gold steadied on Friday, erasing earlier losses as the dollar came under pressure from a U.S. payrolls report that flagged up weak wage growth last month, weakening the case for near-term interest rate hikes. The dollar fell versus the euro and U.S. Treasury yields eased after the jobs report for January…

“Gold is on track to rise 2.1 percent this week, its biggest weekly increase since early November, as the dollar headed for a fourth weekly drop on worries about Donald Trump's presidential style and a lack of clarity on rate hikes. The precious metal hit its highest since Nov. 17 on Thursday at $1,225.30 an ounce after a Federal Reserve policy statement disappointed investors hoping for clearer signs on interest rate hikes, knocking the dollar to a 12-week low….” (“Gold pares losses after U.S. payrolls data,” Reuters, 2/3/17.)

Gold ended the week up $28.20, closing at $1,220.50. Silver prices closed at $17.59, up $0.37.

Advisor to Central Banks: “Buy Gold”
Professor Steve Hanke has an impressive resume. In addition to being a professor of Economics at Johns Hopkins University, he is the Director of the Troubled Currencies Project at the Cato Institute. He also advises central banks and governments on critical economic issues including establishing currency regimes. And he is advising central banks that they need to buy gold.

“Gold prices continue to benefit as investors seek safe-haven assets, and although one professor is not a ‘wild bull’ on the metal, he remains fairly optimistic. ‘If I was advising a central bank, which I do, the recommendation is buy,’ Steve Hanke, professor of Applied Economics at the Johns Hopkins University and a known trader, told Kitco News in a phone conversation Tuesday. ‘Uncertainty in general…and all kinds of things going on [right now] are favorable to gold… I do think gold is relatively cheap now…’

“One of the uncertainties Hanke highlighted is Europe – a region he is familiar with being a member of the Atlantic Council’s EuroGrowth Initiative, which is aimed at building effective economic policy solutions for the region.

“Aside from upcoming European elections, Hanke said that Greece may be coming into trouble with a payment due to creditors in less than one month’s time. Analysts from Brown Brothers Harriman agreed that this Greece issue could have serious consequences. ‘If this window of opportunity is not met, the situation could deteriorate quickly,’ they noted in a report Monday afternoon. If this scenario plays out, gold could benefit as a safe-haven, noted Hanke….” (“I Advise Central Banks, And I Tell Them To Buy Gold: Professor,” Kitco, 2/1/17.)

Gold’s Trajectory is Bullish as Inflation Sleeping Giant Awakens – MarketWatch
MarketWatch reported that 2017 may be the start of gold’s bullish trajectory as inflation begins to take its toll on vulnerable currencies.

“Gold could have at least another 5% upside this year from the 5% leap it already notched in January, driven by higher inflation expectations and the safe-haven demand seen amid swirling uncertainty for the Trump administration’s growth proclamations and its foreign diplomacy...

“Bigger picture? This year is simply one step on the bullish path for the precious metal as an inflation sleeping giant wakes, according to several analysts. Gold, whose physical underpinning differentiates it from inflation-vulnerable currencies, rose roughly 9% in 2016 and ended the year near $1,150 an ounce. Outside its use as an inflation hedge, gold can also simply be seen as a hiding place away from riskier markets… And, yes, say analysts, both factors can drive gold at the same time.

“’I think I’ve seen estimates out of China that over 375 million Chinese want to buy gold but can’t right now. Also, I’ve seen selling of gold to the European Union client base and storing here in America,’ said Peter Thomas, senior vice president of precious metals with Zaner. ‘So, the global “nervous” client coupled with all the hot-spot flare ups in the Ukraine, Poland and the Middle East have been fueling this demand side of the equation. Add to the mix the hydra-head of inflation and, yes, we have a very strong opportunity for higher prices and definitely both have been working together to push gold higher...’

“But at the end of the day, uncertainty tends to underpin gold. Period. ‘2017 will certainly be an eventful and unpredictable year given the high degree of geopolitical uncertainty, with a more nationalistic U.S. president in residence and the indications that the U.K. will pursue a hard Brexit in its negotiations with the European Union,’ the LBMA survey’s commentary offered, also pointing out uncertain elections this year in France and Germany, as well as the potential for tensions between the U.S. and China. On the downside for gold are the anticipated three U.S. rate hikes this year….” (“The path won’t be straight, but gold’s bullish trajectory is set,” MarketWatch, 2/3/17.)

Platinum “Favorite Metal” in 2017 – Faber
Speaking to Kitco News, investor and analyst Marc Farber identified platinum as his favorite precious metal for 2017.

“Investors may be in for a ‘year of disappointments’ and precious metals may prove to be a useful hedge, this according to famed contrarian investor Marc Faber. Known as Dr. Doom for his often pessimistic views, Faber told Kitco News his 2017 outlook is no different to his previously negative forecasts.

“‘As we come into 2017, investors seem to be extremely optimistic about U.S. equities and about the U.S. dollar… I think we can have a year of disappointments.’ Faber said investors should look to have exposure in commodities, especially platinum, which he dubbed his ‘favourite precious metal for 2017… The individual investor will find it difficult to trade commodities where he has to rollover his position every month or every 3 months, which is very costly… For the normal investor who wants exposure in commodities, the best is to be in precious metals - gold, silver, platinum.’” (“Gold, Platinum on Faber’s Radar; Expect ‘Year of Disappointments,’” Kitco, 2/2/17.)

Fed Inaction is Green Light to Gold Investors – Bloomberg
Bloomberg reported that investors are “pouring” into gold as the Fed delays a rate hike and inflation concerns grow.

“The Federal Reserve has emboldened gold bulls. Prices and trading volumes surged Thursday on call options giving holders the right to buy bullion at higher prices …

“The Fed, which kept interest rates steady this week after a two-day meeting, gave little clue on when it might next tighten monetary as officials grapple with the uncertainty created by a new presidential administration. Policy makers in December telegraphed three rate hikes for 2017. Gold prices have rebounded about 6 percent this year, helped by a weaker dollar and demand for the metal as a haven, after posting the worst quarterly loss since 2013.

“’There is no imminent concern of a Fed rate hike, and that gleams the green light on for the metals to move higher,’ David Meger, a director of metals trading at High Ridge Futures in Chicago, said in a telephone interview. ‘The weakening dollar and the lack of concern of a Fed interest-rate hike, and slightly higher inflationary numbers in the market, all support the precious metals….’” (“Investors Are Pouring Into Gold,” Bloomberg, 2/2/17.)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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