Gold is “Ultimate Protection” Against Economic Collapse

Release Date: 
Friday, August 28, 2015

Gold and Silver Prices
Gold prices rose on Friday but remained below its earlier six week high to end the week lower.

"Gold prices were slightly higher on Friday, but the prospects of a stronger dollar and further good economic news out of the U.S. will likely keep a cap on the price of the metal in the coming weeks… On Friday gold traded slightly higher on a day when many commodities appeared to lack firm direction… Given big moves in its price since the beginning of August, gold is undergoing a bit of consolidation, said Joni Teves, an analyst at UBS AG. U.S. rates will likely remain the big focus for gold buyers, with U.S. payroll numbers next week a key point for the market.” (“Gold Prices Higher But Fed Rate Increase Prospects Cap Gains,” WSJ, 8/28/15.)

Gold finished the week down $26.30, closing at $1,134.80. Silver prices closed the week at $14.70, down $0.74.

Gold is “Ultimate Protection” Against Economic Collapse
Egon von Greyerz, Founder and Managing Partner of Matterhorn Asset Management, sees gold as the ultimate asset for wealth preservation and insurance when markets collapse.

“What is currently happening in markets should be no surprise to investors who understand sound money and have been following our risk warnings in the last few years. The world has been living in cloud cuckoo land for so long that unlimited credit at zero percent, hundreds of trillions of dollars of new credit and quadrillions in derivatives were all believed to be real money and assets and part of normality. In the last couple of days we can see how quickly euphoria changes to fear…

“So markets are crashing and currencies tumbling. The next financial disaster will be the biggest of them... This brings us back to wealth preservation and insurance against imploding assets and all the risks around the world.

“Physical gold will continue to serve as money as it has done for 5,000 years as currencies crumble and assets implode… As the world now enters what will be probably be the most volatile period in world history both economically, financially and geopolitically, wealth preservation is absolutely critical. We are going to see wealth destruction that will shock the world. Therefore, physical gold must be held as insurance against these risks. Throughout history gold has always had the role of real money and wealth preservation whenever there has been a crisis in any nation.” (“Gold Is The Ultimate Protection Against The Great Financial Catastrophe,” Gold-Eagle, 8/25/15.)

Next Gold Rally is “Imminent” - Lundin
Jefferson Financial CEO Brien Lundin believes the highly anticipated Federal Reserve rate hike, along, with renewed Chinese acquisition of gold, will soon send gold prices higher.

“Like a true contrarian, Gold Newsletter publisher Brien Lundin looks beyond the headlines to understand what is really moving precious metals prices. He has concluded that the mainstream media may have it all wrong. Suspected anchors on the gold price such as an interest rate increase and devaluation of the yuan could actually be a rallying cry for commodities, he says in this interview with The Gold Report…

“We have an unusual situation in the gold market right now in that in the Commitments of Traders reports by the U.S. Commodities Futures Trading Commission, for the first time, the managed money sector has a net short position in gold…Add to that the possibility of a Federal Reserve rate hike at some point, and we could see a big, unexpected move upward in gold. I think the timing of a rate hike has been overhanging the gold market for well over a year. Relieving that issue could actually prompt a short covering rally. It would be kind of a sell-the-news event where the shorts figure that the trade is over and this is a good time to begin covering, more and more head for the door, and we have the rally underway…

“Chinese consumers, the investors and savers domestically who have been buying gold hand over fist, now think that the yuan is going to be depreciated over time, so their incentive to buy gold is heightened. I expect that the devaluation will actually increase gold demand in China… I think we saw something very near to complete capitulation in gold on July 20 when speculators attacked the entire metals market through orchestrated flooding of short sales onto the futures exchange. Due to greater demand from China and now greater safe-haven demand from Western buyers, gold prices should continue to rise… I think the next upcycle in metals is imminent.” (“Why a Fed Rate Hike Could Be a Blessing for Gold Prices,” Market Oracle, 8/27/15.)

Gold Set for “Massive Rewards” – Zulfiqar
Research analyst Moe Zulfiqar believes that market uncertainty and volatility will send investors to gold, setting up the yellow metal for “massive” gains.

“Gold prices go up when uncertainty rises. As it stands, there’s an abundance of it in the global economy. There are at least three major issues that are haunting investors globally; economic slowdown in China, threat or outright currency devaluation in the emerging markets, and the U.S. dollar rising as the Federal Reserve contemplates hiking its benchmark interest rates…

“Here’s what must be understood; when sentiment across the board is bleak, investors usually don’t rush towards the yellow metal all of a sudden. From previous crashes and panic situations, we see a slight delayed reaction. For example, back in February and March of 2009 … gold prices declined slightly as well. A few months later, they started to soar, and then eventually moved on to their highs back in 2011…

“Let’s face it; gold hasn’t been an investor favorite for the past few years. The yellow metal has gotten a reputation of a “declining asset.” As this uncertainty and the volatility in the global economy continues, don’t rule out investors trusting the yellow metal once again and rushing towards it. I have been optimistic towards gold and believe that the metal continues to set up for massive rewards.”  (“Gold Prices to Skyrocket as Global Uncertainty Rises?” Profit Confidential, 8/27/15.)

Wells Fargo Warns U.S. Debt Threatens Economy
Analysts at Wells Fargo published a troubling report about U.S. debt and its growing risks to the economy.

“The U.S. budget deficit has narrowed in recent years as a result of moderate GDP growth and spending cuts... From a long-run perspective, however, the federal deficit is set to steadily rise over time, increasing U.S. federal debt to unprecedented levels. An aging population, coupled with rising health care costs, presents the greatest challenge for federal coffers. [D]ebt would exceed 180 percent of GDP by 2090 in the CBO’s extended baseline projections, well above levels ever experienced in U.S. history…

“As federal debt climbs, the government will need to issue more and more Treasury securities to cover the gap between outlays and revenues. If demand for Treasuries were to remain constant, this glut of supply would push bond prices down and yields up, raising the cost of borrowing in the private sector… The CBO estimates that when the deficit goes up by one dollar, national saving falls by 57 cents and foreign capital inflows rise by 24 cents (as higher interest rates attract foreign capital flows), leaving a net decline of 33 cents in investment in the long-run…

“If the U.S. fails to address the fiscal imbalance in the long-run, the government would need to run consistently large deficits by historical standards. As a result, growing debt and rising interest rates could lead to a downward spiral in which higher interest rates make the growing debt more costly to service, leading to even more borrowing. For now, the U.S. fiscal situation has stabilized, but the long-run outlook remains ominously unclear.” (“Interest Rates and Rising U.S. Federal Debt,” Wells Fargo Securities, 8/26/15.)

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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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