Frank Holmes: Gold Can Reach New Highs

Release Date: 
Friday, April 4, 2014

Gold and Silver Prices

Gold and silver prices climbed higher this week, with gold breaching the $1,300 level after a weaker than expected U.S. jobs report. “Gold prices rose Friday, after government data showed the U.S. created slightly fewer jobs than expected last month, leaving investors questioning whether the country's economy is strong enough for the Federal Reserve to continue cutting stimulus at its current pace…The Fed's stimulus—which has kept the dollar cheap and rates low—has helped boost gold over the last several years, as the precious metal is traditionally viewed as a hedge against currency debasement and inflation.” (“Gold Prices Rise on Heels of Jobs Report,” Wall Street Journal, 4/4/14.)

Gold finished the week up $7.40, at $1,303.30. Silver prices closed at $20.06, up $0.14.

Frank Holmes: Gold Can Reach New Highs

Frank Holmes, Chief Investment Officer for U.S. Global Investors, told Business Insider he believes gold can surpass its all-time high.

“Looking forward over the next few years, I think it’s possible for gold to recover to the $1,900 level that we saw previously. On a long-term basis, say five years, I think gold can surpass that level…I see many opportunities for gold looking forward…Year-to-date China has taken physical delivery of 200 tonnes of gold…We are still witnessing mind-boggling consumption of physical gold, and you can see…that gold demand remains robust in China.” (“Russia Controls 40% Of This Critical Industrial Metal,” Business Insider, 4/1/14.)

Portfolio Manager’s Drivers for Gold

Mining industry advisor and portfolio manager with Dynamic Funds, Robert Cohen discussed the factors he believes will drive gold prices higher.

“‘The primary price driver is global liquidity. That is fed by balance-sheet expansion in many Western countries and foreign exchange reserves, typically the result of trade deficits built up in countries such as China. Number two is real interest rates. The Federal Reserve could tighten rates, but we don't know where inflation will be. Negative real rates are very good for gold…Positive real rates above 2% can stall the gold price. Number three is geopolitical crisis. Strife can get priced in and out of the gold price.’”

“‘Without any change in world affairs, we believe that the gold price could rise US$100–200/oz.…Any significant catalyst that will erode fiat money purchasing power, such as falling industrial production, more unemployment or broader trade deficits, could take gold much higher. Gold moves when you least expect it. Investors should always have some gold in their portfolios for insurance. That's the main purpose of owning gold.’” (“The three key gold price drivers this year - Cohen,” Mineweb, 3/31/14.)

UBS: Investors See Value In Diversifying With Gold

UBS precious metals strategists Edel Tully and Joni Teves wrote about rising interest in gold at current price levels.

“The deliberate move lower has not felt very dramatic, but that’s not to say gold hasn’t already moved considerably. Since the peak two weeks ago, gold prices have now lost around $100 or over 7%. This is likely part of the reason buying interest is starting to emerge…The aggressive and persistent increase in gold speculative length over the last two months made the market increasingly vulnerable for a washout. The hawkish tilt from the FOMC combined with easing safe haven demand gave longs enough reason to cut back positions. Interestingly though, the correction has been relatively orderly and interest to buy the dip is evident. This reflects the underlying improvement in sentiment towards gold – investors are acknowledging the value of holding gold to diversify portfolios and insure against tail risks and are therefore looking for opportunities to get in at better levels.” (“Gold May Be Falling, But Sentiment’s Still Rising,” Barron’s, 3/31/14.)

Traders Survey Sees Upside for Gold

“A majority of participants in Kitco News’ weekly gold survey look for the price of the metal to rise next week…Eleven see prices up, while five see prices down and two see prices sideways or unchanged…Adrian Day, president and chief executive officer of Adrian Day Asset Management, also looks for higher prices, commenting that the previous correction lower, after Federal Reserve Chair Janet Yellen’s mid-March comments about interest rates, was overdone. ‘A correction was overdue, given the geopolitical premium in the price in early March, but now the correction has run its course,’ Day said. ‘Yellen’s comments were misunderstood, and Yellen herself has backtracked. Gold is due for a rally.’” (“Survey Participants See Higher Gold Prices Next Week,” Kitco News, 4/4/14.)

Yellen on Economy, Unemployment

Federal Reserve Chair Janet Yellen discussed the economy, interest rates, inflation and unemployment at a recent speech in Chicago.

“Yellen said today (Monday) the Fed hasn’t done enough to combat unemployment even after holding interest rates near zero for more than five years and pumping up its balance sheet to $4.23 trillion with bond purchases. ‘This extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policy makers,’ Yellen said at a community development conference in Chicago. ‘The scars from the Great Recession remain, and reaching our goals will take time.’”

“Large numbers of partly unemployed workers, stagnant wages, lower labor-force participation and longer periods of joblessness show that ‘there remains considerable slack in the economy and the labor market,’ Yellen said. The Federal Open Market Committee needs ‘to see where the labor market is,’ she said on March 19, adding that if inflation ‘is persistently below’ the central bank’s 2 percent goal, ‘that is a very good reason to hold the funds rate at its present range for longer.’” (“Yellen Says Slack in Job Market Shows Need for Support,” Bloomberg, 3/31/14.)

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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