Buy Gold as Inflation Hedge – Goldman Sachs

Release Date: 
Friday, November 11, 2016

The expected volatility following the presidential election materialized as gold prices swung wildly following Mr. Trump’s election as America’s 45th president.

“Gold remained volatile in Asian trade on Friday and was set for its first weekly decline in four, with investors continuing to mull over the economic outlook after Republican Donald Trump won this week's U.S. presidential election… ‘Gold stayed on the defensive, beset by enhanced growth expectations as Trump's team reassured financial markets and investors took on the view that the pro-growth policies of a new administration were good for paper assets,’ said James Steel, chief metals analyst for HSBC Securities in New York…

“’Gold is moving according to the dollar. The financial sector seems to have stabilized for a second day on Thursday,’ Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong, said. ‘Some strong physical buying at the lower end is keeping gold from not falling too much. Whenever there is a dip, we have seen strong buying.’

“’China has increased demand and if gold falls further we could see more price-sensitive buying come into the market,’ Steel of HSBC added.” (“Gold price set for first weekly drop in four, Trump policy in focus,” Reuters, 11/11/16.)

Gold ended the week down $76.40, closing at $1,288.60. Silver prices closed at $17.47, down $1.04.

Buy Gold as Inflation Hedge – Goldman Sachs
Goldman Sachs advised investors to add gold to their portfolios as a hedge against future inflation.

“Goldman Sachs told investors to … buy gold as a hedge due to the prospect of future inflation from Donald Trump's economic agenda.

“’The implications of a clean Republican sweep of both houses is probably as important for the markets as the unexpected presidential result... Market performance indicates a continuation and intensification of the reflation trend since the summer,’ Goldman's chief global equity strategist, Peter Oppenheimer, wrote in a note to clients Wednesday.

"Following several years of gridlock between the houses, the potential now exists for a number of legislative initiatives to be passed. Our U.S. strategists point to the possibilities of fiscal stimulus/infrastructure spending, corporate tax reform, reducing regulation and addressing rising health-care costs.’” (“Goldman says ride the 'reflation' trade on Trump's victory by selling bonds, buying gold,” CNBC, 11/10/16.)

Global Economic and Political Uncertainty Makes Gold Valuable to Investors – WGC
The Word Gold Council provided a market update to investors following the presidential election outlining the factors which make gold critical to investor portfolios.

“The global political and economic environment is gold supportive… Global political risk in advanced economies remains high. The pound sterling has plummeted by more than 15% since the UK voted to leave the EU. Despite a recent uptick, the pound remains under pressure as expectations of a ‘hard’ Brexit linger and there is still no clear road map out of Europe. Just last week, the High Court ruled that the UK government must consult Parliament before triggering ‘Brexit’, adding uncertainty even as the government appeals. Europe’s own problems seem poised to worsen too. It will shortly enter election season next year, where many antiestablishment and populist parties are polling well. Elections in Italy, France, Germany and Holland could see these parties significantly increase their vote share.

"In our view, the intense political uncertainty that advanced economies now face, combined with the unknown aftermath of years of unconventional monetary policies (quantitative easing, zero and now negative interest rates) will make gold particularly valuable to investors in the coming years. Gold is the only de-facto currency that cannot be debased by printing more of it, and the only one that does not carry political risk. There is a reason why gold has outperformed every major currency throughout history.” (“Market Update,” WGC, 11/9/16.)

Gold to $1500, Silver to $24 – Barisheff
Nick Barisheff, CEO of Toronto’s Bullion Management Group, forecasts significant rises in gold and silver prices under Mr. Trump’s presidency.

“According to Nick Barisheff, President and CEO of Bullion Management Group Inc. (BMG), ‘A Trump US presidential victory signals US$1,500 an ounce for gold and US$24 for silver in the intermediate term… Investors prefer clarity, and until President-elect Trump fully clarifies his economic, trade and foreign policy positions, investors will be in a high-alert state of uncertainty. Roiling markets will compel investors to purchase safe-haven assets, especially precious metals.’

“’The mainstream financial media, market analysts and fiscal academics continue to overlook the fundamental reasons to own bullion,’ said Barisheff. ‘In one word, this oversight boils down to 'uncertainty…’ Barisheff emphasizes that the gold price has a strong historic correlation to the growth of the US national debt of about 90%. ‘This correlation diverged in 2011, and in order to reflect the current $20 trillion in total debt, the gold price should be at least $2,000 per ounce,’ said Barisheff.

“Trump's platform promise of greater infrastructure spending and tax cuts will result in an acceleration of an already exponentially rising debt. Looking ahead several years, Barisheff stands by his long-term forecast as outlined in his book, $10,000 Gold: Why Gold's Inevitable Rise Is the Investor's Safe Haven.” (“Trump Win Signals $1,500 Gold and $24 Silver, predicts Nick Barisheff,” Market Oracle, 11/10/16.)

Investors Should Vote to Protect Portfolios With Gold – Brecht
Market analyst Kira Brecht explained why a new presidency is bullish for gold.

“Gold is the clear market winner in the 2016 presidential election. The massive political and economic shift that lies ahead with a Trump administration opens the door to a variety of factors that could prove significantly gold-bullish.

“Recession And Bear Market. No matter who won this election, the four-year presidential cycle is a well-known and well-documented economic phenomenon which highlights key risks ahead… There is plenty of potential fodder for recession… Uncertainty may well be the hallmark that looms over financial markets in the weeks and months ahead.

“Global Trade War. If Mr. Trump delivers on his campaign trail threat of slapping high tariffs on China and declaring it a currency manipulator, investors can expect increased market volatility and risk aversion and potentially slower global growth. Gold will flourish in this environment.

“Slower Economic Growth. Amid the uncertainty surrounding the specifics of Mr. Trump's policies, businesses… and consumer spending will become more cautious. The odds of a Federal Reserve rate hike in December have now plunged amid the uncertainty –another gold bullish twist.

“Higher Deficits. [Mr. Trump] has proposed unfunded tax cuts for the wealthiest individuals, which are expected to increase the deficit. That is gold bullish, as it remains a currency that governments are unable to debase with printing presses.

“Geopolitical Uncertainty. If Mr. Trump follows-through on his campaign talk regarding U.S. alliances, geopolitical uncertainties could spike. There is the risk that he unravels U.S.-led alliances and institutions that have underpinned defense and security for Western nations since World War II.

“The bottom line: Over the short run, the markets are driven by fear and emotion. In the long-run investors are looking for value, safety and the opportunity for wealth accumulation. Gold priced under $1,300 delivers on all fronts. While Americans voted at the polls on Tuesday, now it is time for investors to vote for to protect and diversify their portfolio with gold.” (“The Wild Ride Is Just Getting Started: War, Recession And Bear Market Ahead?” Kitco, 11/9/16.)

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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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