Fed Plans To Shrink Balance Sheet Scare Investors, Support Gold - Forbes

Release Date: 
Friday, April 7, 2017

Gold prices spiked on Friday fueled by the United States' missile attack upon a Syrian air base and a jobs report that did not meet expectations

“Gold futures jumped to five-month highs Friday, with a much weaker-than-expected March jobs report helping the yellow metal extend gains after an initial surge following U.S. airstrikes on Syria… ‘It remains unlikely that the U.S. will follow up with further attacks, but the incident will now create further tensions between the U.S. and Russia and destabilize the region,’ and may also signal a new U.S. posture on international intervention that could turn into a more aggressive stance on North Korea, said Peter Hug, global trading director at Kitco, in a note. ‘All unknowns for now, but enough tension to create a floor for gold,’ he said…” (“Gold jumps to 5-month highs as Syria, weak U.S. jobs report trigger haven buying,” MarketWatch, 4/7/17.)

Gold ended the week up $4.60, closing at $1,254.80. Silver prices closed at $18.06, down $0.27.

Fed Plans To Shrink Balance Sheet Scare Investors, Support Gold - Forbes
Forbes wrote that investors are sending gold prices higher after learning that the Federal Reserve plans to shrink its 4.5 trillion balance sheet.

“All that optimism among traders, which was built after the blowout of the ADP number, quickly faded away when the sheer size of the Fed's balance sheet was brought to light during the Fed's minute… Some members of the Fed have shown interest in shrinking the size of the Fed's balance sheet and this broke the rally for the dollar. Loss for one is a gain for the other, hence why the precious metal started to shine. Investors are anxious about the idea of shrinking the balance sheet and are asking questions such as: how will the Fed shrink their balance sheet; what impact will it have on the equity; can they control the damage? This is clearly a safe mode and translates as more good news for gold…

“The Fed [has] now signalled their intentions to the market, meaning that the balance adjustment is not far off. Therefore, investors should start thinking about positioning their portfolios accordingly….” (“March Fed Minutes Spooks Investors, Gold Rally Continues,” Forbes, 4/6/17.)

Urgent Need For Gold In Portfolios - Schroders
James Luke, fund manager for the global asset manager Schroders, believes that investors have an “urgent” need to include gold in their portfolios due to the global risks to the economy.

“The environment for gold investments remains positive. In the background, global record debt burdens have not magically vanished. These make global growth highly sensitive to any real increase in interest rates and the cost of servicing these debts.

“This is a key reason to expect that central banks will be highly wary of raising interest rates too quickly and that real interest rates (a key driver of gold prices) should continue to remain very low and have the possibility of being negative as inflation accelerates.

“Given investors’ high exposure to the traditional asset classes, there is an urgent need to find uncorrelated and attractive alternative investments.  Liquid and tangible portfolio diversification options are limited, making gold and gold-related investments unique and of use to all investors….” (“Is it time for investors to go for gold?” Money Observer, 4/6/17.)

Platinum Trading At Near All-Time Discount – Energy & Capital
Luke Burgess, writing for the website Energy & Capital, explained that platinum is trading at a nearly all time discount to gold, offering investors an opportunity for significant gains.

“The price of gold has moved considerably higher over the past few weeks. It has found good support over $1,250 an ounce. And while the yellow metal is still very well positioned to continue gaining, platinum could be set for even larger growth. Simply put, platinum has never been so undervalued — ever. At just over $950 an ounce, platinum is trading at a near all-time discount to gold…

“Meanwhile, the market is faced with serious platinum supply deficits that almost promise to send prices much higher from here. And for the few investors who recognize the opportunity and take action, large gains seem quite likely…

“The price relationship between the two metals is best illustrated in the gold/platinum ratio. This is simply the price of gold divided by the price of platinum, and it describes their relative price strength. If the ratio is high, gold is more expensive than platinum. If it's low, platinum is more expensive. The current gold/platinum ratio is near all-time highs at 1.3. This shows platinum is cheaper than it's been in decades relative to gold…With a widening global supply deficit and historic price divergence between it and gold, platinum currently offers a unique investment opportunity that will reward the few investors who recognize it….” (“Platinum at a Historic Discount to Gold,” Energy & Capital, 4/6/17.)

Global Debt At “Eye-Watering” $250 Trillion - Institute Of International Finance
The Institute of International Finance has calculated the combined global debt has risen to a record $215 trillion (£173 trillion), threatening the global economy.

“Global debt has climbed at an "eye-watering" pace over the past decade, soaring to a fresh high of £170 trillion last year, according to the Institute of International Finance (IIF). The IIF said total debt levels, including household, government and corporate debt, climbed by more than $70 trillion over the last 10 years to a record high of $215 trillion (£173 trillion) in 2016 - or the equivalent of 325pc of global gross domestic product (GDP).

“It said emerging markets posed ‘a growing source of concern’ to financial stability and the global economy as debt burdens in these countries climb at a rapid pace… The body, which represents the world's top financial institutions, said a wave of maturing debt this year presented a ‘growing refinancing risk’… ‘While risks associated with currency mismatches may not be as acute as during past emerging market debt crises, the overall emerging market debt burden - particularly as global interest rates head higher - is a growing source of concern,’ the IIF said in a note… It said the ‘sheer size of debt could set the stage for an unprecedented private deleveraging process that could thwart the fragile economic recovery’….” (“Global debt explodes at 'eye-watering' pace to hit £170 trillion,” The Telegraph, 4/4/17.)

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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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