Global Factors Favor Gold – Manglik

Release Date: 
Friday, March 3, 2017

Gold prices fell this week but remained largely resilient after comments from the Federal Reserve’s chair, Janet Yellen, downplayed the possibility of an imminent interest rate hike citing concerns about disrupting markets and sending the economy into recession.

“Gold prices were only slightly lower Friday, having withstood remarks from Federal Reserve Chair Janet Yellen that all but assured an interest rate hike in March. ‘At our meeting later this month, the Federal Open Market Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,’ Yellen said in a speech to The Executives' Club of Chicago. ‘We realize that waiting too long to scale back some of our support could potentially require us to raise rates rapidly sometime down the road, which in turn could risk disrupting financial markets and pushing the economy into recession,’ she added….” (“Gold Down 2.5% For Week, Yellen Signals March Hike,” RTT News, 3/3/17.)

Gold ended the week down $22.60, closing at $1,253.30. Silver prices closed at $18.05, down $0.38.

Global Factors Favor Gold – Manglik
Jayant Manglik, president, Religare Securities Ltd., wrote a commentary for Forbes explaining why international factors warrant investing in gold.

“With most parts of the world still struggling on the economic front, it is a difficult situation for most assets except gold. Comparatively, there is less uncertainty in India, but the dynamics that drive gold prices are fundamentally global. The major factors that affect it—strength of the US dollar and Federal Reserve System (Fed) interest rates, EU’s and Japan’s monetary policies, inflation and geopolitics—are all moving parts that combine and determine the price of gold in international markets…

“Overall, the global factors seem to be playing out in favour of a rise in gold prices in 2017. A weak US dollar leads to higher gold prices… In the UK, the Brexit outcome has added to doubts about the future of the EU itself. Struggling to kick-start their economies, Japan and the EU have been following a loose monetary policy, which has helped keep a steady demand for gold. Inflation in the US is crawling up, and eventually its fear will also drive gold demand. Rising crude oil prices, engineered by a dodgy alliance between ideologically opposed countries, will accentuate global inflation further, adding to the demand for gold.

“Finally, the geopolitical situation worldwide is iffy, with serious potential issues in the South China Sea, the Middle East, Africa, and now in the US. There is also a clear trend towards nationalist politics globally, which could lead to a more inward-looking foreign policy in several countries. All this makes it seem that one must invest keeping a high level of uncertainty in mind, and this is the classic environment that favours investment in gold…

“The reason to invest in gold is not necessarily only in the quest for returns. In fact, it will probably give lower returns compared to other assets over longer periods of time. But it is a safe haven investment that is also an alternative currency anywhere in the world. It is instantly saleable and the price is transparently accessible everywhere. Besides being a hedge against inflation, it also reduces portfolio volatility because it has a negative correlation with equity, thus becoming a balancing asset. And because it is not owned by any country or government, unlike paper currency, its value cannot be debased at will. In an extreme example, markets can break down and borrowers can fail to pay, but gold is the ultimate safe investment….” (“Global factors favour a rise in gold prices: Religare Securities' Jayant Manglik,” 3/1/17.)

Fiscal “Bloodbath” Coming To U.S. – Stockman
Former Reagan Administration White House Budget Director David Stockman is warning Americans that President Trump has inherited a fiscal mess that will lead to a “bloodbath” to our economy.

“Former Reagan Administration White House Budget Director David Stockman says financial pain is a mathematical certainty. Stockman explains, ‘I think we are likely to have more of a fiscal bloodbath rather than fiscal stimulus.  Unfortunately for Donald Trump, not only did the public vote the establishment out, they left on his doorstep the inheritance of 30 years of debt build-up and a fiscal policy that’s been really reckless in the extreme.  People would like to think he’s the second coming of Ronald Reagan and we are going to have morning in America.  Unfortunately, I don’t think it looks that promising because Trump is inheriting a mess that pales into insignificance what we had to deal with in January of 1981 when I joined the Reagan White House as Budget Director…’

“This is the greatest suckers’ rally of all time.  It is based on pure hopium and not any analysis at all as what it will take to push through a big tax cut.  Donald Trump is in a trap.  Today the debt is $20 trillion.  It’s 106% of GDP. . .Trump is inheriting a built-in deficit of $10 trillion over the next decade under current policies that are built in…You put all that together and it’s madness.  It doesn’t even begin to add up, and it won’t happen when you are struggling with the $10 trillion of debt that’s coming down the pike and the $20 trillion that’s already on the books.’

“Then, Stockman drops this bomb and says, ‘I think what people are missing is this date, March 15th 2017.  That’s the day that this debt ceiling holiday that Obama and Boehner put together right before the last election in October of 2015.  That holiday expires.  The debt ceiling will freeze in at $20 trillion.  It will then be law.  It will be a hard stop.  The Treasury will have roughly $200 billion in cash.  We are burning cash at a $75 billion a month rate.  By summer, they will be out of cash.  Then we will be in the mother of all debt ceiling crises.  Everything will grind to a halt.  I think we will have a government shutdown.  There will not be Obama Care repeal and replace.  There will be no tax cut.  There will be no infrastructure stimulus.  There will be just one giant fiscal bloodbath over a debt ceiling that has to be increased and no one wants to vote for.’

“Stockman also predicts very positive price moves for gold and silver as a result of the coming budget calamity….” (“Giant Fiscal Bloodbath Coming Soon-David Stockman,” USAWatchdog, 2/26/17.)

Stars Aligned For Gold – Rangold CEO
Rangold CEO Mark Bristow told Kitco News that the stars are aligned to bolster gold prices.  

“In the medium long term 'I don’t think, in my 20 years, I’ve ever seen the stars so aligned for a better gold price,’ This whole populace movement across the world, the challenging of the recent globalization vision, and… fairly heavyweights that are leading some of the bigger economies are very unbending in their ways, I think the global economy in a really tough place...  Gold won’t go down because the demand is there. Then you add to that the declining production… to change that you have to find more than 18 million ounces above the reserve grade industry today – that’s almost impossible task and so with a shrinking supply side of the equation and a burgeoning demand, things are good for gold.” (“‘I’ve Never Seen Stars So Aligned For Gold’ - Randgold CEO,” Kitco News, 3/3/17.)

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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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