China’s New Gold Pricing Scheme May Send Prices To New Records

Release Date: 
Friday, April 22, 2016

Gold and Silver Prices
Gold prices ended the week higher despite a modest pullback on Friday.

“Gold headed for a weekly increase as the dollar extended losses, boosting the metal's appeal as a haven. Silver, which entered a bull market this week, held near an 11-month high… The precious metal has risen 17 percent this year as concerns over the global economic outlook drove volatility in financial markets, and central-bank policies around the world whipsawed currencies.” (“Gold set for weekly advance as silver trades near 11-month high,” The Business Times, 4/22/16.)

Gold ended the week down $1.90, closing at $1,233.20. Silver prices closed at $17.06, up $0.73.

China’s New Gold Pricing Scheme May Send Prices To New Records
Economist and financial author Dr. Stephen Leeb told King World News that China’s new gold price “fix,” which ties gold prices to the Chinese currency, will ultimately allow China to raise prices to unseen records.

“What China has essentially done today is introduced their own gold fix priced in yuan.  Once the world views gold in terms of yuan per grams of gold as the way of measuring and trading gold, that will mean that China is officially controlling the world’s gold market.  You have to also remember that China has already acknowledged that they want gold to play a much more important role in the world monetary system…

“And if China is controlling the world’s gold market, gold will start to play a much more important monetary role.  The reality is that China has downplayed the true amount of their massive gold holdings, and we are nearing the point where the Chinese will announce that they are the largest holders of gold in the world.  This will put China front and center in terms of controlling the global monetary system and it will also put China in a position to dominate the world economy…

“What I am saying, Eric, is that investors better own gold and continue to buy gold just like the Chinese because the price is ultimately headed to somewhere between $10,000 and $20,000, and it will be the Chinese that make that happen for their own benefit.” (“China’s New Gold Fix First Step In Moving The Price Of Gold To $10,000 – $20,000,” King World News, 4/19/16.)

CPM Group Forecasts Sharply Higher Gold Prices
Jeffrey Christian, the Managing Partner of CPM Group, a commodities research and financial advisory firm, sees three factors which will continue to fuel gold’s bull market in the coming years.

“When we last spoke to Jeff in December of 2015, he told listeners that CPM Group was expecting a moderate increase in the price of gold in 2016 with the possibility of some dramatic upward moves as record high short positions flip to the long side. Jeff's analysis turned out to be quite accurate…

What's one thing in particular that you and others are watching closely that may have a large impact not just on gold, but on the market as a whole this year? ‘[One] thing that has become more important... is concern over the British exit from the EU. They have a referendum on June 23rd and the opposition to EU membership within England is much greater than either the establishment in England or CPM Group thought - even a month or two months ago. And the risks to the global financial markets...are greater now and so I think that is keeping investor interest in gold higher than it otherwise would be and it may keep investors interested in gold into June. So, the gold price may be supported higher than we expected... and then, if they do vote to exit, then that could be very positive for gold too.’

You have mentioned that you believe gold will continue to move higher in the years ahead. Why do you believe that to be the case? ‘I think there are three factors… Our expectation is that going forward, beyond 2016, you will see economic, financial, and political concerns rising once again and investors will go from purchasing 17-20 million ounces of gold per year back toward 30 or even 40 million ounces and that rise in investment demand back to the levels we saw, really from 2007 to 2012, will push gold prices higher. It will be joined by the fact that central banks are now buying more gold...and, after, 2017, mine production peaks and starts falling sharply...’” (“CPM Group's Jeff Christian Sees Sharply Higher Gold Prices In The Years Ahead,” Seeking Alpha, 4/20/16.)

Gold To Rise Higher In 2016 - Minyanville
Award-winning financial news and media company, Minyanville, reported that gold prices are expected to continue their rise in 2016 as central banks continue their low and negative interest rate policies.

“While the gold price today is mostly flat, its rise this year continues to attract attention and investors… Since the gold price has surged more than 15% year to date, it has so far consolidated rather than sell off. That's bullish behavior that may well point to ongoing strength as we move further into 2016…

“So far this year, the gold price peaked at $1,270 and has gradually worked its way lower over the past month. Until now, the $1,210 level has held pretty well.
The fact that the price of gold has managed to consolidate between about $1,210 and $1,270 for the last two months is a sign of strength.

“What's been driving this kind of action? As I explained earlier, dollar weakness has supported higher gold in the short term. But there's more to it than that. The fact is Janet Yellen and her band of U.S. Federal Reserve members recently backed off raising interest rates. The market sell-off in January clearly told her that the economy couldn't handle higher rates. So the Fed had to oblige. And elsewhere, negative nominal rates have people concerned and even afraid.

“In Japan, for instance, gold bar sales climbed 35% … The World Gold Council said Japanese consumer demand nearly doubled… Europe, where the ECB also decided negative rates would be a good idea, has also seen strong gold demand, too.
In fact, the World Gold Council summed it up perfectly: ‘History shows that, in periods of low rates, gold returns are typically more than double their long-term average. Over the long run, negative-interest-rate policies may result in structurally higher demand for gold from central banks and investors alike.’” (“Why the Gold Price Today Indicates More Gains in 2016,” Minyanville, 4/17/16.)

Gold Entering New Bull Market – Holmes
U.S. Global Investors CEO Frank Holmes noted that a number of institutions and analysts believe gold has entered a new bull market.

“After finishing its best quarter in 30 years, gold extended its gains, rising more than 17.2 percent year-to-date to become the best performing asset class among other commodities, U.S. Treasury bonds and major world currencies… We are likely entering a new gold bull market, writes the World Gold Council (WGC)... Since 1970, we’ve seen five gold bull markets, each one lasting an average 63 months and returning an average 385 percent, according to the WGC.

“Now, as reported on Mining.com, one precious metals analyst predicts gold could rise to $3,000 within the next three years… Three thousand dollars might be an overstatement, but several prominent financial institutions, including HSBC, RBC Capital Markets and Credit Suisse, are currently bullish on the metal…

“Drivers of Gold: The U.S. Dollar and Real Interest Rates… The U.S. dollar has been weakening relative to other major currencies …  Gold is priced in dollars, so when the greenback drops, the yellow metal becomes less expensive, and therefore more attractive, for buyers in other countries.

“More meaningful to price movements, however, are negative real interest rates. When inflation picks up, making short-term government bond yields drop below zero percent, savvy investors turn to other so-called “haven” assets, gold among them. This is what I call the Fear Trade. In September 2011, when gold hit $1,900, the real fed funds rate was sitting close to negative 4 percent….” (“Why One Analyst Believes Gold Could Hit $3,000 an Ounce,” Kitco, 4/22/16.)

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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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