The Cost Of Terrorism And The Case For Gold – Holmes

Release Date: 
Friday, March 25, 2016

Gold And Silver Prices
Gold prices fell during this shortened trading week as Federal Reserve members issued hawkish statements regarding interest rates, bolstering the U.S. dollar.

“Gold is trying to find its groove ahead of the Easter long weekend. The yellow metal was down 2.7% for the shortened holiday week. Gold is set to mark a third weekly loss in a row as expectations for a U.S. Federal Reserve interest-rate hike as early as next month increased. However, Simona Gambarini, a commodities economist for the London-based research firm Capital Economics, says even if the Fed hikes rates a few times this year, gold will remain firm. 

“’With regards to gold, we remain positive on the medium-term prospects for the gold price, despite the fact that we expect the Fed to press ahead with a rate hike in June, followed by two further 25bps (basis points) rate hikes in the following two quarters...’ Gambarini highlighted two main reasons why gold will remain up despite a tightening rate cycle. ‘The first is the recent resilience of gold despite fading safe-haven demand and rising U.S. bond yields,” she said. “The second is growing evidence that gold is benefitting from a revival of demand for inflation hedges….’” (“Gold Price Tries To Find Groove Ahead of Holiday Weekend; Down Over 2%,” Kitco News, 3/24/16.)

Gold ended the week down $38.80, closing at $1,217.20. Silver prices closed at $15.30, down $0.59.

The Cost Of Terrorism And The Case For Gold – Holmes
In its recent U.S. Global Investors “Investor Alert,” CEO Frank Holmes explained the monetary cost of terrorism and the importance of gold during these tumultuous times.

“While we can’t leave aside the immeasurable loss of life, tragic events such as these tend to have an enormous ripple effect on the economy. Between 70 and 80 percent of the European economy is based on consumption, and when people’s sense of safety and security ends up being rattled, they might temporarily avoid spending on travel and at malls, cinemas, restaurants and elsewhere…

“Indeed, few things are as disruptive to our lives and the economy as terrorist activity. A recent Gallup poll found that 79 percent of respondents believe global terrorism to be a “critical threat” to the U.S., the highest of any other potential threat. What’s more, the economic impact of global terrorism has been rising steadily since 2010. In November, the Institute of Economics and Peace (IEP) calculated its cost at over $52 billion in 2014, the highest ever.

“But this figure takes into account only direct, short-term costs. The 9/11 attacks were initially estimated to have cost $27.2 billion, but when you factor in indirect and long-term expenditures—the economic impact, war funding, future veterans’ care and more—it comes closer to $3.3 trillion, according to the New York Times…

“The attacks also highlight the importance of owning gold, which investors have traditionally valued for its stability in times of crisis and currency fluctuations. Lately we’ve seen central banks all over the globe respond to lackluster growth with subzero rate polices, and this could accelerate if terrorist activity continues to shock our economies. The yellow metal is currently up more than 15 percent since the beginning of 2016, making it one of the best performing assets of the year….” (“Here’s the Cost of Global Terrorism,” U.S. Global Investors’ Investor Alert, 3/24/16.)

Higher Interest Rates Positive For Gold – HSBC
James Steel, an analyst at banking giant HSBC issued a research note analyzing gold’s positive performance when the Federal Reserve raises interest rates.

“Everyone was saying gold was dead just a few months ago, now AFTER the recent gold prices rise analysts are now turning more bullish.

“After tracking the previous four Fed tightening cycles, analysts at HSBC have determined that gold prices have rallied for at least 100 trading days after the first hike by the FOMC, and they think this time the rally could last longer. James Steel gives three reasons why the current rally in gold may be prolonged this time in his March 17 research note titled “Gold and the Fed.”

“Steel points out that after 12 consecutive years of positive performance, gold prices posted their first year of losses in 2013… The HSBC analyst argues that Fed policy perception played a key role in the selloff… However, Steel points out that gold prices started resuming their upward journey this year. He believes tightening Fed policies don’t necessarily imply the end of the current rally though... On the contrary, Steel points out that gold prices tend to rally as Fed tightening cycles get underway. He highlights that they weaken going into a tightening cycle and then rally for the next 100 trading days. However, the analyst believes that considering that rate hike expectations continue to be pushed into the future, the present gold rally will last even longer…

“Even though gold rallied by over $200/oz. or by over 20% since hitting cycle lows in December 2015, Steel argues that unlike in the past, this time one can anticipate the rally to be extended. The analyst pegs his top-end forecast for gold at $1,300/oz. this year….” (“Gold shines when the Fed starts tightening,” Business Insider, 3/22/16.)

Government Sponsored Iranian Hackers Targeted U.S. Banks, Dam
The U.S. Justice Department indicted seven Iranian hackers who caused “cyber-mayhem” in attacks on banks, government institutions and a NY dam.

“The Justice Department on Thursday announced it has indicted seven hackers associated with the Iranian government, marking the first time the United States has charged state-sponsored individuals with hacking to disrupt the networks of key U.S. industries.

“The crimes include attacking U.S. banks’ public websites from late 2011 through May 2013 and with breaking into a computer system at a small dam in Rye, N.Y., in an apparent attempt to disrupt its operation…

“The indictment alleges that the suspects caused cyber-mayhem, including coordinated “distributed denial of service,” or DDoS, attacks, in which hackers commandeered Web servers around the world and used them to direct massive amounts of traffic to crash the commercial sites of 46 U.S. financial institutions. Those attacks, for a time, occurred on a near-weekly basis and affected dozens of major institutions, leaving hundreds of thousands of customers unable to access their bank accounts online, the indictment alleges…

The affected institutions and businesses included Bank of America, the Nasdaq composite index, the New York Stock Exchange, Capital One, AT&T and PNC, the indictment alleges. Attorney General Loretta E. Lynch said the attacks caused tens of millions of dollars in losses. ‘These attacks were relentless, they were systematic and they were widespread,’ Lynch said.

According to the indictment, [the hackers] obtained access to a computer control system for the Bowman Avenue Dam. That access, according to the indictment, would have permitted [the hackers] to ‘operate and manipulate’ a gate on the dam if it had not been manually disconnected for maintenance issues. ‘The potential havoc that such a hack of American infrastructure could wreak is scary to think about,’ said Preet Bharara, U.S. attorney for the Southern District of New York….” (“U.S. charges Iran-linked hackers with targeting banks, N.Y. dam,” Washington Post, 3/24/16.)

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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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