Fund Manager: Gold Can “Hold Value” Over Time

Release Date: 
Friday, September 5, 2014

Gold and Silver Prices

Gold prices recovered some of the losses from earlier in the week after the release of a much weaker than expected U.S. non-farm employment report for August. “U.S. job growth slowed to its lowest level of the year in August, a stumble for labor markets that had delivered a string of steady gains over the prior six months despite uneven economic growth. Nonfarm employment advanced a seasonally adjusted 142,000 last month, the Labor Department said Friday. The unemployment rate, obtained via a separate survey of households, ticked down to a seasonally adjusted 6.1% in August from 6.2% in July. Economists surveyed by The Wall Street Journal had expected payrolls to rise 225,000 and the jobless rate to fall to 6.1%.” (“Gold Reverses Losses On Disappointing U.S. Jobs Number,” Wall Street Journal, 9/5/14.)

Gold finished the week down $18.10, closing at $1,269.40. Silver prices closed the week at $19.29, down $0.19.

Fund Manager: Gold Can “Hold Value” Over Time

The Gabelli Gold Fund discussed their outlook for gold this week.

“Continuing ultra-loose monetary policy around the world, uncertainty about how well the U.S. economy will perform once quantitative easing ends and potential for renewed hiccups in the bond markets are reasons why it may be worthwhile to keep some gold in an investment portfolio, say the managers of the Gabelli Gold Fund. Gold can be a store of value in hard times since it [has] no counter-party risk, they pointed out.”

“But for the longer term, ‘we think that the backdrop for gold is pretty good,’ Bryan said. For starters, he cited ‘extraordinary monetary policy’ from developed nations around the globe. Economic growth remains ‘lackluster,’ [Caesar] Bryan [portfolio manager] continued. Also, there has been a large rise in public debt over the last few decades. Often, ‘to satisfy one debt, more debt is issued,’ Bryan explained. ‘To the extent that there is any disruption in that, it should be positive for gold.’”

“There is a sense that the economy is improving, the stock market is doing well, the housing market has recovered and ‘things are OK,’ Bryan said. So investors might say, ‘why do I need to own gold?’ However, gold is still worth holding as a monetary asset that can hold value over time, he continued. For one thing, Mancini pointed out, there is always the chance the economy won’t be that strong after all…quantitative easing ends.” (“Gabelli Fund Manager: Gold Has Value As Hedge; Another 'Disruption' Possible In Credit Markets,” Kitco News, 9/5/14.)

Banking Industry’s Potential Fall Out from Cyber-Attacks

The banking industry has been put on alert after recent cyber-attacks have increased.

“Bankers and U.S. officials have warned that cyber-terrorists will try to wreck the financial system’s computer networks. What they aren’t saying publicly is that taxpayers will probably have to cover much of the damage. Even if customers don’t lose money from a hacking assault on JPMorgan Chase & Co. (JPM), the episode is a reminder that banks with the most sophisticated defenses are vulnerable. Treasury Department officials have quietly told bank insurers that in the event of a cataclysmic attack, they would activate a government backstop that doesn’t explicitly cover electronic intrusions, two people briefed on the talks said.

“‘I can’t foresee a situation where the president wouldn’t do something via executive order,’ said Edward DeMarco, general counsel of the Risk Management Association, a professional group of the banking industry. ‘All we’re talking about is the difference between the destruction of tangible property and intangible property.’

“The attack on New York-based JPMorgan, though limited in scope, underscored how cyber assaults are evolving in ferocity and sophistication, and turning more political, possibly as a prelude to the sort of event DeMarco describes. Not simply an effort to steal money, the attack looted the bank of gigabytes of data from deep within JPMorgan’s network. And bank security officials believe the hackers may have been aided by the Russian government, possibly as retribution for U.S. sanctions over the Ukraine war.

“A worst-case event that destroyed records, drained accounts and froze networks could hurt the economy on the scale of the terrorist attacks of Sept. 11, 2001. The government response, though, might be more akin to that following the 2008 credit meltdown, when the Federal Reserve invoked “unusual and exigent circumstances” to lend billions of dollars. The government might have little choice but to step in after an attack large enough to threaten the financial system. Federal deposit insurance would apply only if a bank failed, not if hackers drained accounts. The banks would have to tap their reserves and then their private insurance, which wouldn’t be enough to cover all claims from a catastrophic event, DeMarco and other industry officials said.” (“The Cyber-Terror Bank Bailout: They're Already Talking About It, and You May Be on the Hook,” Bloomberg, 8/29/14.)

Another Major Retailer Targeted by Hackers

Another major retailer was targeted by hackers, causing some to wonder how to protect consumers.

“Home Depot may be the latest retailer to have suffered a massive credit card breach, with the company moving to assuage consumers' fears after a large cache of stolen data reportedly appeared on black market sites. According to information first reported by Krebs on Security on Tuesday, the breach may have extended as far back as the spring of this year. If so, the fallout may end up being far larger than Target's incident late last year, when personal data pertaining to tens of millions of customers was compromised. Home Depot is working with investigators to determine the origin of ‘unusual activity,’ a spokeswoman said in a statement.

“‘Protecting our customers' information is something we take extremely seriously, and we are aggressively gathering facts at this point while working to protect customers,’ she added, but declined to provide further information…‘If we confirm a breach, we will offer free identity protection services, including credit monitoring, to any potentially impacted customers,’ the company said in a statement, ‘incentives that Target also offered to consumers affected by its data theft last fall.’”

“Privately, according to reports, officials suspect the hackers are of either Russian or Ukrainian origin. Hackers from those countries are also widely suspected as having orchestrated a recent attack on the Nasdaq Stock Market.” (“Hackers target credit data from Home Depot; company moves to soothe fears,” CNBC, 9/3/14.)

European Central Bank Announces Policy Shift

The European Central Bank announced a shift in monetary policy, aimed at battling low inflation fears.

“The European Central Bank unexpectedly lowered all its interest rates Thursday and announced two new programs for buying asset-backed securities and covered bonds issued by eurozone banks. Speaking in a news conference, ECB President Mario Draghi said the new programs will be launched next month, and operational details will be provided after the governing council's Oct. 2 meeting.

“While the ECB had in recent months indicated it was considering an ABS purchase program, the addition of a covered bond program and rate cuts was a surprise, and an indication that officials have grown increasingly concerned that the recent period of very low inflation could persist longer than first thought and may threaten the currency area's economic recovery. ‘In August, we see a worsening of the medium-term inflation outlook, a downward movement in all indicators of inflation expectations,’ Mr. Draghi said. ‘Most, if not all, the data we got in August on GDP (gross domestic product) and inflation showed that the recovery was losing momentum.’” (“ECB Cuts Rates, Announces Stimulus to Combat Low Inflation,” Wall Street Journal, 9/4/14.)

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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:

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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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