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Gold and Silver Prices
Despite a dip in prices on Friday, gold is expected to close the week for one of its largest weekly gains in the past 30 days.
“The price of gold slipped after a mixed U.S. jobs report on Friday, but was still on track for its biggest weekly gain in a month on doubts about whether the Federal Reserve can keep raising interest rates… The price has advanced nearly 4 percent so far this week as investors turned doubtful that the U.S. will raise rates this year after a top Fed official, William Dudley, said there was a need to consider the weakening global outlook in framing U.S. monetary policy.
“But analysts said some traders may have trimmed positions in gold slightly after the jobs report as the strength of U.S. wage growth and the drop in the unemployment rate may have revived the prospect of some hikes this year…
“’Gold is still a lot above where it was at the beginning of the week and it still looks less likely that the U.S. will go ahead with a rate hike in the next few months so that is positive for gold," said Simona Gambarini, an analyst at Capital Economics.
“A shaky global economy has lifted buying interest in gold, making it among the best performing assets since the start of 2016 with a gain of more than 9 percent… Silver is on track for its best week since May last year.” (“Gold price slips after mixed U.S. jobs data,” Reuters, 2/5/16.)
Gold ended the week up $55.70, closing at $1,174.50. Silver prices closed at $15.11, up $0.77.
Gold Is 2016’s “Beloved Asset” – CNN Money
CNN Money told its readers that gold is one of the few shining investments in 2016.
“Gold bugs are among the only smiling investors these days. Prices have jumped 6% this year to $1,127 an ounce. That makes gold the best performing commodity and one of the only major assets to post a sizable gain in 2016…
“Gold tends to shine brightest during times of stress. The precious metal is viewed as a reliable store of value for investors to turn to when they're worried about economic doom. And right now, there's no shortage of exactly that kind of anxiety.
Whether it's falling oil prices, trouble in China or geopolitical uncertainty, Wall Street has a long list of worries steering money towards safe havens like gold…
“’Gold is the winner of that game because it has the least industrial use so it's least affected by the global slowdown," said Axel Merk, founder of Merk Investments which now holds about 20% of its assets in gold…
“To be sure, gold prices remain well below their 2011 record highs of nearly $1,900 an ounce. In fact, just six weeks ago gold tumbled to a six-year low of $1,049 an ounce. Gold fell out of favor last year due to the Federal Reserve's decision to raise rates for the first time in nearly a decade. The rate hike lowered the chances that the Fed's near-zero rates would cause a bout of severe inflation. That was bad for gold, which is seen as a hedge against inflation. But now that trade is reversing. Investors are betting the global turmoil will cause the Fed to scale back its plans to raise interest rates four times this year…
“Of course, if the market is wrong and the Fed does raise rates three or four times this year, gold could take a hit. Capital Economics doesn't think the gold rally is done. The firm thinks strong demand from China and India, two of the biggest consumers of gold, will help send the yellow metal another 10% higher to $1,250 per ounce by the end of the year.” (“Gold is 2016's most beloved asset,” CNN Money, 2/2/16.)
Negative Interest Rates Could Send Gold to $1900 - Lombardi
Financial commentator Michael Lombardi sees the growing trend of negative interest rates to be bullish for gold.
“Last week we heard that the Bank of Japan became the fourth major central bank to embark on the path of the unknown world of negative interest rate policies. The goal of a negative interest rate policy is to boost lending by commercial banks, which in turn is expected to spur economic growth… The list of central banks contemplating negative interest rates is growing…
In my mind, negative interest rates mean paper money is not worth anything. After all, if you have it, you are basically being punished for keeping it. When something like this happens (a negative interest rate policy), you are being penalized for holding cash because your bank will give you back less than you deposited. Because of this, one would assume gold prices would shoot through the proverbial roof as interest rates go negative. Unfortunately, this isn’t happening…
“Just a few years back, gold prices were skyrocketing (reaching about US$1,900 an ounce in 2011) because the global economy was moving toward lower interest rates. Now, we have it worse—we have interest rates going negative—and gold prices are not aggressively sharping back. Sure, gold prices are up nine percent this year, but that’s paltry compared to how oversold gold bullion had become and the new reality of negative interest rates…
“Negative interest rate policies are great for gold. As China further lowers its domestic interest rates to deal with its slowing economy, as the Federal Reserve pulls back on its promise to raise interest rates in 2016, and as more world central banks adopt a negative interest rate policy, gold prices could be in for a banner year in 2016.” (“Negative Interest Rate Policy to Send Gold Prices to $1,900 Again?” Profit Confidential, 2/5/16.)
Federal Reserve Considering Negative Interest Rates To Bolster Economy – CNBC
In a dramatic reversal, the Federal Reserve may move towards negative interest rates to help combat an ever-weakening U.S. economy.
“Less than two months after the Fed enacted its first rate hike in more than nine years, market talk already has turned to whether the central bank's future may not be more hikes, but rather negative rates. Intensifying recession fears, volatile financial markets and moves toward negative rates by other central banks have triggered speculation over whether the Fed may have to reverse course on its tightening policy.
“Negative rates in the U.S. would be a highly unusual move. However, several high-ranking Fed officials, including Chair Janet Yellen, Vice Chair Stanley Fischer and New York Fed President Bill Dudley all have indicated the move would be something they would have to examine should financial conditions tighten and threats to economic growth increase.
“’While not our baseline scenario, if the U.S. economy were to sufficiently weaken we believe the Fed could consider negative rates as a means to ease policy,’ Mark Cabana, rates strategist at Bank of America Merrill Lynch, said in a note to clients…
“Instituting negative rates has a goal of shocking banks into lending and stimulating inflation, which has been in short supply both in the U.S. and much of the world's developed markets.
“One of the main instruments the Fed could use is on the interest paid on excess reserves. Banks have $2.34 trillion stored at the Fed compared to $99.7 billion required. The Fed pays 0.5 percent on those reserves, so reducing that number or pushing it below zero would be one way the Fed could get money moving again into the broader economy….” (“Negative rates in US? Here's why it could happen,” CNBC 2/5/16.)