Gold’s True Value Is $1700 – Deutsche Bank

Release Date: 
Friday, September 2, 2016

Gold ended the week in positive territory fueled in part by a disappointing jobs report which dampened prospects of a Fed interest rate hike.

“Gold futures headed for the biggest gain in a month after U.S. employment data missed estimates, boosting the metal’s appeal as a haven… ‘Traders are bidding up gold because they think the jobs number isn’t strong enough to justify two rate hikes this year,’ Phil Streible, a senior market strategist at RJO Futures in Chicago, said by telephone. ‘Lower interest rates means a weaker dollar and gold moves up on that…’

“Gold is up 26 percent this year as uncertainty in U.S. growth pushed the Federal Reserve to consider holding off raising interest rates this year, and as the Brexit left traders considering an economic slowdown in Europe. Higher rates reduce the appeal of gold, which doesn’t pay interest or offer returns like assets such as bonds or equities….” (“Gold Jumps as U.S. Jobs Disappointment Dims Tightening Prospects,” Bloomberg, 9/2/16.)

Gold ended the week up $4.30, closing at $1,325.80. Silver prices closed at $19.52, up $0.77.

Gold’s True Value Is $1700 – Deutsche Bank
Deutsche Bank told its clients that gold’s true value, when measured as a currency, is $1700, nearly $400 above current prices.

“Gold has been under pressure in recent weeks, but one bank is making the case that the precious metal is actually extremely under-priced.  Deutsche Bank analysts Michael Hsueh and Grant Sporre wrote in a note to clients Friday that if measured as a currency, gold’s worth is close to $1,700 per ounce. This is a steep 29% climb from gold’s current price, which has traded near a five-week low this week…

“Looking at the 300% expansion of central bank balance sheets and the 200% rise in above-ground gold stocks since 2005, Deutsche Bank analysts argue that to keep the two equivalent in value, gold should be trading near $1,700.Gold prices tend to be influenced by growth in central bank balance sheets, but has lagged behind since 2013, according to the research report. This could provide some support to gold going forward. ‘As long as the central banks’ balance sheets continue to expand, the gold price should maintain some momentum,’ the note said.

Other bullish analysts calls on gold see the precious metal trading near $1,400 or even $1,500 an ounce by the end of the year, if the safe haven asset continues to benefit from economic uncertainty, negative interest rates and concerns over the U.S. presidential election. Still, Mr. Hsueh and Mr. Sporre said they are not predicting a rise to $1,700 in the near term, and given gold’s recent outperformance, the precious metal is likely to see a period of slower price appreciation….” (“The Case for Gold at $1,700,” WJS, 8/30/16.)

Gold Investors Should Prepare For Best Month Of The Year – Hulbert
MarketWatch senior columnist Mark Hulbert wrote that September should be the best month for gold investors.

“September is the best month of the calendar for gold. That’s welcome news to the beleaguered gold-investor community, which has had to endure a frustrating couple of months as the price of gold backed off from its early-July high of $1,374 an ounce…

“Since the early 1970s, when it first became legal for U.S. citizens to own bullion, gold has produced an average return of 2.2% in September… So gold’s positive September tendencies are not, in and of themselves, a sufficient reason to improve your near-term outlook for gold. But there are other reasons as well.

“One is sentiment among gold market timers. For the first time in six months, they on average are net short the gold market, meaning they are betting on a decline. According to the contrary logic of contrarian analysis, their bearishness is a positive development…

“The bottom line: Gold sentiment is improving, even if it is not yet at low enough levels to trigger an outright contrarian “buy” signal. Coupled with positive seasonal tendencies, however, it may be time to give gold the benefit of the doubt.” (“Opinion: Gold investors, prepare for the best month of the year,” MarketWatch, 9/2/16.)

Foreign Countries Increase Withdrawals Of Gold From Federal Reserve
The financial website Zero Hedge reported that foreign countries are withdrawing their gold from the Federal Reserve depository in New York at a rate similar to withdrawals at the beginning of the 2007 subprime mortgage crisis.

“Thanks to the latest NY Fed data, we now know that beginning in 2014 and continuing through yesterday, the gold ‘bleeding’ from the vault located 90 feet below street level at 33 Liberty Street is not only continuing but accelerating… [W]hile central banks assure the population that there is nothing to worry about when it comes to paper money, which may or may not soon be banned if certain Harvard economists have their way, they have been quietly accelerating their withdrawals of gold from the biggest centralized depository of global gold in the world: the New York Federal Reserve…

“[S]ince the current round of monthly withdraws from the NY Fed started in February of 2014, there has been a total of 388 tons of gold redeemed by foreign central bank holders over a span of 30 months, which is just 20 tons shy of the previous burst of withdrawals which started in March of 2007, with the emergence of the subprime crisis, and culminating in November 2008 with the bailout of AIG.” (“Gold Withdrawals From The NY Fed Accelerate, Hit 388 Tons Since 2014,” Zero Hedge, 8/30/16.)

Fed To Monetize “Everything” As U.S. Moves Towards Hyperinflation – Turk
James Turk argued the U.S. is on a dangerous path towards hyperinflation based upon the Federal Reserve’s dangerous interest rate policies.

“I have been forecasting hyperinflation of the US dollar for some time because there are just too many new dollars being created by the Federal Reserve. So it has been my expectation that the US dollar will be destroyed in a hyperinflationary blow-off, but it hasn’t happened – yet.

“Timing is always problematical and impossible to predict. So I have been focusing more on the outcome and road signs along the way that we are indeed headed to the destruction of the dollar’s purchasing power. So far the Fed has been able to delay the inevitable day of reckoning with their various interventions…

“But the biggest factor that has delayed the inevitable hyperinflation is the Fed’s intervention to keep interest rates near zero. With the Federal government’s debt level now approaching $20 trillion, a 1% increase in its borrowing cost would add $200 billion to its already gargantuan annual deficits.

“So a 5% increase to bring interest rates back closer to normal levels would increase the federal deficit by $1 trillion, but compare this amount to the $3.2 trillion the government receives in revenue. The government would not likely cut back spending in other areas to keep its deficit from exploding. Therefore, a 5% increase in borrowing costs would cause the annual deficit to jump by $1 trillion, which in turn would increase the federal debt, then causing a higher annual interest expense bill. Even bigger deficits and more borrowing would consequently follow. Like a snowball rolling downhill, this debt accumulation rapidly leads to more money printing and inevitable hyperinflation.

“Finally, another piece of evidence that the Federal Reserve is heading for a train wreck is this statement from Fed Chair Yellen on Friday: ‘Policymakers may wish to explore the possibility of purchasing a broader range of assets.’ They are planning to monetize everything in sight, rather than admit that their policies have failed and they are destroying the dollar.” (“ALERT: James Turk Issues Dire Warning As Fed To Monetize ‘Everything In Sight’,” KWN, 8/29/16.)

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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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