Gold: Easiest Insurance Vehicle

Release Date: 
Friday, May 29, 2015

Gold and Silver Prices
Gold prices rose on Friday on news the U.S. economy shrank in the first quarter of 2015 but ultimately ended the week down.

“Gold prices rose on Friday after data showed the U.S. economy contracted during the first quarter, boosting hopes that the Federal Reserve would delay raising interest rates… The weak report bolstered hopes that Fed officials would put off raising interest rates until later in the year. Gold would benefit from a protracted period of interest rates pinned near zero…

“’How can you raise rates when your GDP is in the red?” said Bob Haberkorn, a senior commodities broker with RJO Futures in Chicago…’I don’t think you’re going to see a Fed rate increase anytime soon ... and this should be reflected in the gold market….’” (“Gold Turns Higher on GDP Report,” WSJ, 5/29/15.)

Gold finished the week down $16.90, closing at $1,190.00. Silver prices closed the week at $16.70, down $0.38.

Gold is “Easiest Insurance Vehicle” to Protect Portfolio: Merk
Axel Merk, president and chief investment officer at Merk Investment, believes gold offers the easiest form of portfolio insurance in the current global market.

“One fund manager said that gold still represents the easiest insurance vehicle to protect your portfolio in an environment of growing political and economic instability because of poor fiscal policies.

“Axel Merk, president and chief investment officer at Merk Investment, said in an interview with Kitco News that the U.S. and world economies once again face the potential of another crisis - one that central banks like the Federal Reserve might be ill-equipped to handle as long-term fiscal problems need to be addressed.

“’You can get away with bad monetary policy when the fiscal side is in order but when the fiscal side is a mess, but best monetary policy is not going to rescue you… Right now the fiscal policies in much of the developed world are a mess…’

“’Is gold going to go up every single day in this environment? Almost certainly not, but 10 years from now I think gold is going to do much better than many other asset classes.’” (“Gold Still Looks Good In Environment Of Systemic Instability – Merk,” Kitco, 5/27/15.)

Gold Is World’s “First Currency”
Kira Brecht, managing editor of TraderPlanet, offered three reasons why investors should include gold in their diversified portfolio.

Gold is considered to be the world's first currency…Today, Western investors view gold as an alternative asset, a commodity, a quasi-currency, a portfolio diversifier and an inflation hedge. So-called "gold bugs" invest in the metal to protect against global gloom-and-doom scenarios. But average investors might want to diversity into gold as well, experts say.

Here are three reasons you might consider adding some of the yellow stuff to your portfolio.

Portfolio diversifier. The goal of any balanced portfolio is diversification, and gold can play a part, experts say…

Safe haven. Gold has traditionally been viewed as a safe investment that climbs in value during times of geopolitical crisis or political instability. "A lot of people who invest in gold look at it as insurance in your portfolio against catastrophic financial market failure, severe economic problems or war…"

For example, one of the factors that helped propel gold to its all-time high in 2011 above $1,900 per ounce was news that Standard & Poor's downgraded U.S. government debt for the first time…

Inflation hedge. Gold is considered a classic inflation hedge because its price tends to rise during inflationary periods, and it tends to rise as consumer prices increase.” (“3 Ways to Diversify Your Portfolio With Gold,” U.S. News & World Report, 5/27/15.)

Gold is “Worthy Successor” to U.S. Dollar: Cooper
Peter Cooper, Editor and Publisher of the financial website ArabianMoney, explained to investors why gold will become the currency of choice for investors.

“[W]here do currency speculators turn for the next momentum trade? An increasing number of professional money managers think gold will be where the retail punters go to next and it’s true gold has been trading more like a currency than a commodity recently. If the dollar is no longer king, then gold looks like a worthy successor.

“For a start, gold is at the bottom of a correction of more than three years and attractively priced for an upward move... Gold has actually already held up very well with the rise of the US dollar and came second only to the dollar last year in performance against all other currencies…

“Now that the Fed has taken its foot off the pedal for interest rates gold prices should no longer stay low. The April minutes of the Federal Reserve’s committee meeting hinted that a June rate increase is highly unlikely, though September could happen. Does it not begin to feel like traders are being strung along from one meeting to another?

“The reality of the US economic recovery also grows more dubious by the day... Once investors wake up to the fact that interest rates are actually going to stay low for much longer, then logically gold prices should be heading up and up. The threat of rising US interest rates to the gold price is gone.

“A Greek exit from the euro and national bankruptcy may also be finally about to happen. That would be a hugely positive event for gold as a safe haven asset. Some experts say this will add $200 to the price of gold… Gold is about to have its run – as a speculative currency vehicle as the ultimate money that no central bank can print. Where do central banks go when currency markets give up on them? Back to the only true money and that’s gold.”  (“Investments in gold could be the next best bet,” Gulf Business, 5/24/15.)

Greek Exit Could “Discombobulate” Currencies: Gross
Noted bond manager Bill Gross warns a possible Greek exit from the Eurozone could destabilize the currency of other indebted nations.

“A Greek exit from the euro zone could ‘discombobulate’ currencies and open the door for contagion to other heavily indebted nations, bond investor Bill Gross said Wednesday… He noted that if Greece left the euro zone, it would only lead to speculation swirling around Portugal, Spain or Italy. ‘I think it matters because markets interpret events on a forward basis,’ said Gross, manager of the Janus Global Unconstrained Fund.

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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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