Be Prepared for Investor Stampede to Gold – Commerzbank

Release Date: 
Friday, March 24, 2017

Gold prices finished a second week in positive territory on a weakened U.S. dollar.

“Gold rose on Friday, notching its second straight week of gains as concern about the
ability of U.S. President Donald Trump to push legislation through Congress pressured the dollar, making bullion cheaper for holders of other currencies. The dollar remained near seven-week lows against a basket of currencies ahead of a vote on a healthcare bill, formally called the American Health Care Act.      

“Gold, seen as a safe haven asset, has benefited from falls in the dollar, U.S. bond yields and stocks this week as Trump's difficulty in passing healthcare reform has undermined faith that he can deliver on promises of tax cuts and investment….” (“Gold rises for 2nd week as dollar hampered by healthcare vote,” Reuters, 3/24/17.)

Gold ended the week up $14.10, closing at $1,243.90. Silver prices closed at $17.84, up $0.37.

Be Prepared For Investor Stampede To Gold – Commerzbank
Commerzbank AG, a global banking and financial services company, sees investors rushing to acquire gold as prices approach a key technical level.

“The investor love affair with gold is just about to get a reboot. That’s according to Commerzbank analysts, who cited the precious metal’s revisit to the key $1,250-per-ounce level as one reason for renewed interest…

“’Although this psychologically important threshold appears to be posing something of a challenge in the short term, the chances of the price rising above it are good,’ said a team of analysts led by Carsten Fritsch, in a note to clients Thursday. Fueling that is some fears that the reflation trade—that is hopes that U.S. President Donald Trump will make good on his promises of pro-growth policies—is dwindling…

“If that vote stumbles for the administration, some investors worry that could run into trouble on goals closely linked to economic growth, which has been fueling an appetite for perceived riskier assets such as stocks. Of course, not everyone agrees with that. Investment bank Barclays told clients in a note Thursday that they don’t see equities being derailed until the global economy either backtracks in a big way or the overall financial backdrop falls apart.

“Speculative financial investors in particular are likely to jump back onto the bandwagon: in the run-up to the Fed meeting their net long positions had dropped to their lowest level since the beginning of the year, putting them a good 80% lower than their last summer’s high,” wrote the analysts. “There is ample upside potential, in other words.’” (“Get ready for the investor stampede back into gold: Commerzbank,” MarketWatch, 3/24/17.)

Investors Need To Diversify In Gold – ETF Securities
Maxwell Gold (that’s really his name), director of investment strategy at ETF Securities, believes the low interest environment and “cracks” in the financial markets will send investors to gold.

“In a recent interview with Kitco News, Maxwell Gold, director of investment strategy at ETF Securities, said that the U.S. central bank recent action confirms that real rates will remain low and gold will continue to attract investors looking to diversify their portfolio.

"Gold noted that last in the first half of last year was driven mostly because of strong speculative interest in the marketplace; however, that sentiment proved to be fleeting. Looking at the rally since the start of the year, Gold said that he sees more long-term interest in precious metals.

“’Overall we see broad-based support for all precious metals and I think it is more than just a speculative position,’ he said. ‘We have seen a stabilization of investor interest. A lot of the speculative money has been washed out of the market.’

“Although equities remain near record highs, cracks are starting to appear in the marketplace as momentum weakens. Tuesday, the Down Jones Industrial Average and S&P 500 Index saw their first 1% drop in five months. ‘There is a need among investors to diversify, especially where we are with other asset class options,’ he said… ‘I think gold’s current low volatility makes it an attractive asset for investors looking for an alternative risk hedge,’ he said. ‘You don’t want to be in the market when volatility is high.’” (“Investors Will Continue To Diversify Into Gold In Low Interest Rate Environment - ETF Securities,” Kitco, 3/23/17.)

Inflation And Negative Interest Rates To Move Gold Higher - Erfle
Mining section investor and precious metals commentator David Erfle wrote that the Fed’s planned interest rates and rising inflation will be positive for gold prices.

“Earlier this week, all eyes were glued and computer trading algorithms set to the Federal Reserve two day meeting speech which was released at 2pm EST on the Ides of March 15th…  The Fed’s forecasts have now moved in the direction of tightening as they remain on pace with three hikes in total this year. Their main focus is on stabilizing inflation with the most serious stimulus being the continued rise in stock prices as global capitol continues to flow into US blue chip equities. The market has now priced in a 78% chance of a rate hike in September and a 58% chance of a third 2017 rate hike in December…

“The last time the Fed embarked on an interest rate rise cycle was nearly thirteen years ago. They began to raise rates on June 30th, 2004 from the 1% Fed funds level while gold was trading slightly below $400. Just before the Fed got to 5.25% in the Fed funds rate in May of 2006, gold was trading well above $700. A comparable percentage gold move in two years time from December 2015 would be well above $1800 per ounce by the end of 2017. I am not predicting this, but I believe it is becoming more evident the Fed has been instrumental in fueling the next leg of a multi-decade gold bull market after the first Fed funds rate rise in nearly a decade on December 14th, 2015…

“Core inflation since the election of Donald Trump has risen to a five year high. While inflationary pressures continue to rise, I believe the Fed will not dare to get ahead of the inflation curve with these proposed “gradual” moves higher in the Fed funds rate. This should guarantee negative real rates for perhaps years to come, driving more investors to park investment capital into bullion.” (“Gold Now Poised to Move Higher as the Fed Rate Hike Cycle Continues,” Kitco, 3/17.17.)

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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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