Erste Group: Gold “Attractively Priced”

Release Date: 
Friday, June 27, 2014

Gold and Silver Prices

Gold prices moved slightly higher this week amid expectations of low interest rates and continued uncertainty regarding the Iraqi civil war. “Prices for the precious metal are up 6% from lows reached at the start of the month, boosted by the likelihood that U.S. interest rates would remain near zero for some time and by an insurgency in Iraq that has taken over cities in the northern and western parts of the country…A low interest-rate environment is bullish for gold, which costs money to hold and struggles to compete with yield-bearing investments…The instability in Iraq has encouraged investors to buy gold in the belief that the precious metal will hold its value if the crisis spreads beyond Iraq's borders and pushes other assets lower.” (“Gold Futures Inch Higher,” Wall Street Journal, 6/27/14.)

Gold finished the week at $1,316.10, closing up $0.40.   Silver prices closed down slightly $0.01, at $20.97.

Erste Group: Gold “Attractively Priced”

In its most recent “Gold Report,” Austrian bank Erste Group offered several reasons for owning gold.

“Over the past 12 months, after some ups and downs, the gold price has stabilized above last year's level…gold continues to appear attractively priced in the current environment. The 12-month price target for gold is USD 1,500.”

“Investors should not only invest in gold based on whether its price is currently high or low. Gold is ‘pure property’ and contributes to better overall portfolio diversification…There is moreover no counterparty risk associated with it and it is highly liquid, so it can therefore be sold at any time. In times of unexpected political or economic developments, gold has also proved to be a factor of stability for investment portfolios. This is also buttressed by numerous international studies. An allocation between 5% up to a maximum of 10% of one's total wealth continues to be recommended.” (“Gold Still Glitters, Even After its Correction—Gold Report,” Erste Group, 6/24/14.)

Gold May Reach $2300 – Incrementum Lichtenstein

Ronald-Peter Stoeferle, managing director and partner with asset and wealth manager Incrementum Lichtenstein, provided his company’s long term price target for gold. “Longer-term, we expect that a parabolic trend acceleration phase still lies ahead. In the course of this event, our long-term target of USD 2,300 should be reached at the end of the cycle.” (“In Gold We Trust—2014,” Incrementum Lichtenstein, 6/24/14.)

Canaccord Genuity: Inflation to Stoke Gold Prices

The Canadian wealth management firm Canaccord Genuity recently stated that inflation could begin to drive gold prices higher.

“Rising inflation risks and seasonal factors have compelled global investment firm Canaccord Genuity to upgrade its outlook on the gold market and gold equities earlier than expected…[T]he analysts upgraded the gold market to outperform from neutral on June 18, following a bigger-than-expected increase in the U.S. Consumer Price Index.”

“Because of rising inflation expectations, [Martin] Roberge [managing director of the firm’s North American portfolio strategy] said, in the medium-term, he sees potential for gold to reach its 200-week average around $1,500 an ounce. ‘We believe the Fed is cornered,’ he said.”

“In the same way that the Federal Reserve dropped its unemployment target of 6.5% as part of its forward guidance, he said that the central bank will eventually have to abandon its 2% inflation target to promote economic growth. ‘If the Fed is willing to take an inflation risk, investors should buy inflation-protection hedges,’ he said. ‘Inflationary pressures fuel inflation expectations, two positive drivers for the price of gold.’” (“Gold To Rally Sooner Than Expected On Rising Inflation Risk - Canaccord Genuity,” Kitco News, 6/26/14.)

CNBC: Is Inflation the New Subprime Crisis?

CNBC reported on a chorus of analysts who fear the Federal Reserve is missing critical warning signals regarding growing inflation.

“When Fed Chair Janet Yellen essentially dismissed inflation as a threat last week, she sought to calm investors' fears but in doing so also raised an unpleasant specter of the not-too-distant past. To some, the central bank chief's assertion that inflation threats were coming from ‘noisy’ data—economist talk for volatile, one-off conditions not likely to persist—sounded at least a little like her predecessor, Ben Bernanke, who in March 2007 said problems in the subprime mortgage market were 'contained' and unlikely to pose a larger, more systemic threat. The subprime market, of course, was in the early stages of a meltdown that spread across the financial system and triggered the worst economic downturn since the Great Depression.”

“While government bond yields have been loathe to reflect inflation threats, investors have reacted elsewhere. Gold prices, for one, have jumped about 9.5 percent this year…”

“Not everyone on the central bank believes the broader narrative that inflation is not a worry. Philadelphia Fed Chairman Charles Plosser, among the Open Market Committee's most hawkish members, told a gathering Tuesday at the Economic Club in New York that the economy is growing faster than the FOMC consensus believes, meaning that policy may tighten ahead of schedule. At least some in the market are preparing for that outcome, as highlighted in a report Tuesday from David Rosenberg, chief economist and strategist at Gluskin Sheff: ‘We are a tipping point, methinks, on housing jobs and inflation. And if that is the case, the Fed is so far behind the curve it isn't even funny—maybe this is the message from the U.S. dollar and gold.’” (“Could inflation be the new subprime?” CNBC, 6/24/14.)

Goldline’s Express IRA℠ Program

Many Goldline clients choose to include precious metals as part of their retirement planning especially during times of economic crisis and uncertainty.* Goldline’s Express IRA℠ allows clients to acquire precious metals on their schedule; they no longer have to wait for your self-directed IRA to be funded before getting started.

Goldline's Express IRA℠ not only provides clients with the ability to diversify their IRA on an expedited basis, clients can also qualify for Goldline's ground-breaking Two-Way Price Guarantee Program℠ when they acquire $10,000 or more of our exclusive bullion coins. When an Express IRA purchase qualifies for Goldline's Two-Way Price Guarantee Program℠ clients are protected on short-term upside and downside market movement: they can either call to reprice their coins if the selling price falls (up to a maximum of 28 days depending on the size of the purchase) or, if the selling price of the coins increase during the qualifying period, clients can call Goldline to acquire additional coins at the original selling price.

Goldline provides a wrap-up of the week's precious metals news along with important commentary on the American Advisor Week in Review audio program. Listen to the show below:

*Federal IRA tax laws are complex and may change from year to year. Goldline believes it is appropriate to have 5%-20% of retirement portfolio allocated to precious metals. Other individuals and institutions may recommend different percentages. As with any investment, you should consult your tax advisor before making a decision regarding precious metals IRA investments.

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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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