Gold is “Valuable Hedge and Safe Haven”

Release Date: 
Friday, March 27, 2015

Gold and Silver Prices

Gold prices fell on Friday erasing some of the week’s earlier gains on profit taking and concerns the dollar may move higher. “Gold prices fell and palladium slid to its lowest level in more than five months Friday, as investors fearing renewed strength in the dollar moved to shore up profits…Some investors believe the dollar is ready to resume its rally after a two-week decline, a move that would weigh on commodities… Gold prices are up nearly 5% from intraday lows earlier this month, propelled higher by a weaker dollar and a flaring conflict in Yemen. Some investors buy gold in times of political or economic uncertainty, believing it will keep its value better than other assets in turbulent times.” (Gold, Palladium Slide as Investors Lock in Profits,” WSJ, 3/27/15.)

Gold finished the week --- up $16.00, closing at $1,199.40. Silver prices closed the week at $17.07, up $0.24.

Gold is “Valuable Hedge and Safe Haven”

Mark O’Bryne, executive director of Ireland-based GoldCore, discussed the importance of owning gold as part of a diversified portfolio.

"’Gold can serve as a hedge against declining values of key fiat currencies.’ These are not the words of some so-called 'gold bug', warning that paper currencies are set to collapse in value. Rather, they are part of the recent findings of the UK's influential and respected Chatham House, or the Royal Institute of International Affairs.

"’Holding gold - the world's only independent currency - gives you some protection against the incompetence and idiocy of Europe's bickering politicians. So keep it.’ The second quotation is from Merryn Somerset-Webb, one of the leading finance columnists at the Financial Times and one of the most respected financial experts in the UK.

“Chatham House and Ms Somerset- Webb are part of a growing consensus about the importance of having an allocation to gold as part of diversified investment and pension portfolios… Gold has been shown to enhance returns and to reduce overall volatility over the long term… Throughout history, gold has protected people from inflation and currency debasement and has served as a vital wealth preservation tool.

“Chatham House concluded in their recent report that gold may ‘continue playing a significant role in the international monetary system, serving as a valuable hedge and safe haven, particularly in times when tail risks predominate’.” (“The gold standard in spreading your risk is glistening,”, 3/22/15.)

Silver Set to Surge; Gold Rise Imminent: Zeal LLC

Financial newsletter Zeal LLC advised investors that gold and silver are set for a new bull run.

“Silver’s great allure today when it is down and out is hard for most to understand. That’s because most traders mistakenly make linear assumptions in a nonlinear world… The best times to buy low before later selling high are when assets are universally despised and trading at super-low prices.

“And once silver inevitably reverts back to bull mode, the gains to be won by brave contrarians are vast. Between November 2001 and April 2011 in its last secular bull, silver skyrocketed 1105% higher!...

“As a small market, silver prices are utterly dominated by investment and speculative capital flows. When traders return, their buying catapults silver higher. These characteristic sharp gains attract in even more traders, and their aggressive buying becomes self-feeding. The spark that ignites these wildly-lucrative silver surges is the price of gold. Gold prices drive silver prices, since traders look to it for their silver-trading cues.

“And gold itself is due for an imminent major new upleg... And this coming gold buying will really be amplified by the overdue correction in the parabolic US dollar. Once gold’s rallying convinces traders it’s righteous and sustainable, they are going to rush into silver… The bottom line is silver is poised to surge big.” 

Gold to $1300 By May: BofA

Bank of America Merrill Lynch's head of global technical analysis, MacNeil Curry, believes gold may top $1300 by the end of May due to a breakdown in the relationship between the dollar and gold.

“On Tuesday's episode of ‘Futures Now,’ Bank of America Merrill Lynch's head of global technical analysis, MacNeil Curry, said a near-term ‘correction’ in the dollar over the ‘next couple of weeks,’ paired with declining yields on Treasurys, should lay the groundwork for a sustained and sizable rally in gold that could see it break above $1,300 by the end of May.

"’Rates are headed lower, and the dollar is likely to remain in a corrective sequence in general…Gold should rally in that environment… The big thing here is that we're going to see continued breakdown in the negative correlation between gold and the dollar over the course of the next couple of weeks…If you look at the price action… it says gold should probably resume higher.’” (“Gold is going to $1,300 by May: BofA technician,” CNBC, 3/24/15.)

Dollar “Gyrations” May Lead to “Huge” Gold Move

An analysis of the World Gold Council’s most recent report on gold prices and the dollar indicates that gold prices may move significantly higher as the dollar returns to the mean.

“A trenchant new study by the World Gold Council dissects the relationship between the gold price and the US dollar and suggests that the precious metal may be in for a wild ride…The study authored by Juan Carlos Artigas, ‎Director of Investment Research at the WGC, shows the correlation between a 12-month period when the dollar moved up by more than 7.5% (or one standard deviation) and the subsequent 12-month period is -0.1. That suggests that after a period of strong appreciation the dollar tends to revert back to the mean.

“The reason the dollar's gyrations could trigger a huge move in the price of gold you have to consider the study's central finding: the asymmetrical relationship between the metal and the world's reserve currency. And that asymmetry is quite substantial... Artigas found gold prices rise twice as much during weak dollar periods than they fall when the dollar strengthens…

“Gold has already showed remarkable resilience against the rampant dollar – between early 2014 and last week the dollar rose by 20% while gold only fell by 1.2%. With a possible end to the greenback rally coming closer, the stars may be aligning for the dollar gold price.” (“Study: Dollar gyrations to light fire under gold price,”, 3/26/15.)

American Advisor Week In Review

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: This week's data is presenting a bargain buying opportunity. Is this normal going into a holiday weekend?

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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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