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Gold and Silver Prices
Gold prices seesawed this week but finally ended lower on a stronger dollar and concerns the Federal Reserve will announce higher interest rates at its meeting next week.
“Gold prices pulled lower Friday as a firmer dollar and jitters ahead of next week’s Federal Reserve decision weighed on traders’ appetite for the haven asset… The dollar firmed against other currencies, exerting some pressure on gold prices. The precious metal is traded in dollars and becomes more expensive for buyers who use other currencies to fund their purchases… Investors are also on edge ahead of the Federal Reserve’s monetary policy-setting meeting, set for Sept. 16-17. The U.S. central bank is widely expected to stand pat on rates, but the risk that officials move to raise borrowing costs for the first time in nearly a decade continues to hold gold prices captive.” (“Gold Falls on Pressure From Stronger Dollar, U.S. Rate Doubts,” WSJ, 9/11/15.)
Gold finished the week down $14.10, closing at $1,109.70. Silver prices closed the week at $14.72, up $0.04.
Gold is “Fire Insurance” - Rickards
James Rickards, chief global strategist at the West Shore Funds and author of Currency Wars and The Death of Money: The Coming Collapse of the International Monetary System, told Fox Business views that gold acts like “fire insurance” in a well-diversified portfolio.
“‘Death of Money’ author Jim Rickards recommended a 10% allocation to physical gold when interviewed by the ‘Money Honey’ Maria Bartiromo on Fox Business last week… Rickards said that gold is like ‘fire insurance on your house… Nobody wants their house to burn down but if it does you are glad you have some insurance.’
“Rickards points out that as gold is insurance you should not worry about its price as much as you would other assets. When you buy insurance you are not concerned when the price of the insurance falls. What is important is that you own it as it will protect from worst case financial and monetary scenarios…
“Rickards reaffirmed his view that gold will rise to $10,000 per ounce but said that it is not gold rising to $10,000/oz, rather it is the dollar losing value and a ‘collapse in the dollar’ which could ‘start tomorrow’ as we have an ‘unstable financial system.’” (“Have 10% of Wealth In Gold As “Fire Insurance” – Rickards,” Goldseek, 9/7/15.)
Russian Presidential Aide Advocates Move to Gold, Default on Debt, to Neutralize Western Sanctions
The Russian language financial newspaper Kommersant ("The Businessman") reported on proposals from Russian presidential adviser Sergei Glazyev to neutralize sanctions imposed by the United States and other western countries. Among the proposals are plans to “de-dollarize” the U.S. dollar as well as an intentional default on foreign debt and a move into gold. The quotes below were Google translated from the original Russian.
“[An] interdepartmental commission of the Security Council on security in the economic and social sphere [met] in camera to hear a report of the Presidential Adviser Sergei Glazyev on ‘On additional measures to neutralize threats to the economic security of the Russian Federation in terms of international sanctions…’
“The ‘stabilization of the ruble, the termination of capital flight, de-dollarization of the economy,’ contains a set of measures to ‘stop speculative vortex’ in the currency market. De facto, the proposal of the hard currency control (‘ban on purchase of foreign currency by legal entities without reason the commission payment transactions’) with a number of innovations…
"’Neutralizing anti-Russian sanctions’ - the next section offers primarily interested in the idea of permit companies to declare force majeure ‘relating to loans granted to countries that have imposed financial sanctions against the Russian Federation" - in fact it is approximately equal to the legalization of non-repayment of all private foreign debt . Reserves of the Central Bank, the Reserve Fund and National Welfare Fund Sergei Glazyev recommends convert into gold and ‘obligations BRICS’, which should create "a system of international bank accounts, regardless of the pressure from NATO….” (“Security Council,” Kommersant, 9/8/15.)
Gold Is Important Asset During Currency Wars – Holmes
During an interview with TheStreet, U.S. Global Investors CEO Frank Holmes explained why investors should own real assets such as gold as a defense to the currency wars now waging throughout the world.
“What is really important to gold investors is this accumulation by central banks of gold. So we continue to see, now we see it in China, the monthly consumption of gold and we’re seeing the repatriation of gold. We saw Netherlands bring back over 120 tonnes, Germany, Austria and even the State of Texas basically wants its gold in the State of Texas… Central bankers around the world recognize the currency wars that are taking place and the currency debasement and the best thing is to own real assets….” (“Oil Prices Could Move Gold This Month,” US Global Funds/usfunds.com, 9/10/15.)
Silver Is the Asset To Own - Horwitz
Todd “Bubba” Horwitz, precious metals market veteran and Senior Strategist for Adam Mesh Trading Group, told Kitco News that silver is an asset investors should own.
“The markets is getting ready to make a much bigger move…Silver is an asset you want to own here. I don’t see any major problems… we could work our way a little lower but what you are going to see if the economy is actually improving as everyone would have us to believe, then silver is not only a precious metal but an industrial metal so we have a little more use here. I would be definitely be a buyer of silver, I think this is the trade of choice for me because we are at demand levels that we haven’t seen for quite a while. So I would definitely be a buyer of seller knowing it could go a little lower from here but knowing longer term it is going to turn to at least $17 or $18, silver is an asset you want to own here.” (“Why Is Silver Bubba's Preferred Trade As Gold Hits 4-Week Low?” Kitco News, 9/9/15.)
China Selling Dollars to Bolster Falling Economy
The Telegraph reports that China is selling off dollars in what may be a futile effort to support its currency and flagging economy. The results may be continued low interest rates in the U.S. and other western countries.
“China's war chest of foreign exchange reserves fell by the largest amount on record in August, as official data revealed the cost of efforts to defend the renminbi.
Reserves fell by $93.9bn … according to the People's Bank of China (PBoC). The amount represents the biggest monthly fall on record and the largest in percentage terms since May 2012, when reserves fell by almost 3pc. China's central bank has sold dollars to support its currency following the PBoC's shock decision to devalue the yuan for the first time in modern history.
“The International Monetary Fund (IMF) believes China will continue to slow as growth becomes less reliant on investment and more driven by domestic consumption… It has warned that the country faces a hard landing unless it implements reforms.
“However, economists said there were limits to how much foreign exchange reserves the country could sell. In a note last week, Wei Yao, an economist at Societe Generale, described the PBoC as being stuck in an ‘impossible trinity, where a central bank cannot support a country's exchange rate, maintain an independent interest rate policy and keep an open capital account at the same time…
“Analysts believe that the PBoC's move to defend the renminbi by selling foreign exchange reserves and reducing its ownership of foreign assets are the equivalent of a "QE unwind" or what analysts at Deutsche Bank have dubbed "quantitative tightening". George Saravelos, a currency strategist at Deutsche Bank said this was likely to force other central banks to keep interest rates lower for longer.
“‘We suspect that at a global level this era isn't over yet and the European Central Bank, Bank of Japan and the Fed will have to compensate by easing policy relative to where they expected to be at this stage. So the first two might end up buying more and the Fed may stay lower for longer,’ Jim Reid, a managing director at Deutsche Bank, said in a note last month.” (“China's foreign exchange war chest drained as growth fears intensify,” The Telegraph, 9/7/15.)