Gold Has Two Ways to Win: Rickards

Release Date: 
Friday, June 12, 2015

Gold and Silver Prices
Gold prices remained in positive territory this week despite a modest drop on Friday as the dollar rose on concerns the euro will be devalued further.

“Gold came under pressure on Friday morning from the dollar’s continued rise after comments from German Chancellor Angela Merkel about the euro’s strength… The dollar built on earlier gains after German Chancellor Angela Merkel appeared to target the euro-dollar exchange rate in a similar fashion to Barack Obama. She reportedly argued that the strong euro exchange rate makes it harder for countries such as Spain and Ireland to make reforms…The greenback was already rising on positive US data on Thursday….” (“Gold Price Under Pressure, Merkel’s Comments Bolster Dollar,” Bulliondesk, 6/12/15.)

Gold finished the week up $9.00, closing at $1,182.30. Silver prices closed the week at $16.06, down $0.17.

Gold Has Two Ways to Win: Rickards
James Rickards, chief global strategist at the West Shore Funds and author of Currency Wars, told investors that gold has two ways to “win” in the current economic environment.

“When the Fed prints money (that’s what QE is), investors expect inflation, and therefore rates rise. When the Fed stops printing money, investors expect deflation, and therefore rates fall. For decades, the mantra on Wall Street has been ‘Don’t fight the Fed.’ That was good advice in the past. But manipulation has gone on for so long and the Fed models are so muddled that a new mantra might be in order — Fade the Fed. When the Fed is talking strong growth and rate hikes, it’s a good idea to expect the opposite.
“It is difficult to see how the Fed can raise rates in 2015 without sinking markets and the economy completely; therefore, a rate increase should not be expected. The only things that will change this outlook are if the Fed blinks and admits it cannot raise rates or if it starts to talk about QE4. We’ll be watching closely for indications and warnings on both of those events.”

“How can investors benefit from the huge gap between what the Fed expects and what markets expect? This is a good time to take another look at gold…Gold has two ways to win. If low rates persist, gold becomes more attractive because costs of carry and opportunity costs of holding an asset without yield decline. Conversely, if rates go up, that means inflation is on the way, and the gold price benefits from that also.” (“Why Janet Yellen’s latest comments are bullish for gold,” The Crux, 6/8/14.)

Gold Breakout Nearly Inevitable: Oliver
Analyst and financial newsletter editor Jay Taylor discussed the recent report from technical analyst J. Michael Oliver who sees nearly inevitable higher gold prices.

“Just about the time you think gold is ready to reach some sort of “escape velocity,” Central banks print more money and use it to destroy gold price discovery in the spot markets.  And so it is very difficult to stay true to what you believe when month after month market manipulators seem to have their way. But ultimately the bad guys get their comeuppance. That has been verified in the past by examples such as the Soviet Union market manipulation that ultimately blew the country apart…

“I love the work of J. Michael Oliver not so much because he has turned increasingly bullish on gold and gold shares, but because of the methodology he uses. Michael looks at both market structure and momentum to help him judge when to start adding to or subtracting from a position. Here is what he said about gold on June 1st…’Germany, the Netherlands, and now Austria are moving with determination to repatriate their gold from vaults in the U.S., the U.K., and Paris. Why? What’s going on in the real world that would cause such a rush? Don’t they understand that the CBs have everything under control? Why do they want their gold back inside their own borders? …

“Critics can debate the policy reasons, but the gold repatriation is a fact and it’s happening. The question is why the urgency and the coincidence of these policies now? And why are China and Russia dramatically acquiring gold? (Admittedly, the exact amounts are unknown, but the direction is clear.)

“The point Michael is making is that structural breakdowns occur before prices break down. And Michael believes we are getting very near the time when no matter how much manipulation of the paper gold markets takes place, the price of gold will break through and the banks won’t be able to stop it.” (“Will Gold Eventually Break Out? Almost Definitely, says J. Michael Oliver,” Kitco, 6/11/15.)

Chinese Equity Bubble Positive for Gold
“One French bank has described the Chinese equity market as ‘impending doom’ which could be good for the gold market in the long-term. Gold demand has suffered in Asia during the last 12 months as Chinese investors have jumped into equity markets but their funds could start to shift back as equities enter bubble territory, Bernard Dahdah, precious metals analyst at Natixis, said in a research note Thursday…

“’As with all bubbles, while it keeps inflating investors may be happy to remain invested. If a few IPOs were to fail spectacularly, or one or two larger companies allowed to default, a sharp fall in Chinese equity valuations would not surprise anyone. Gold could then become a more interesting alternative for Chinese investors,’ he said in the report.” (“A Pop In Chinese Equity Bubble Could Push Gold Higher – Natixis,” Kitco, 6/12/15.)

Capital Economics recently affirmed its forecast that gold prices will rise to $1400 by the end of this year fueled by safe haven buying.

“’While the Fed will almost certainly leave monetary policy on hold at Wednesday’s FOMC meeting, markets will watch the statement and subsequent press conference closely for any hints on the timing of the first rate hike,’ wrote analysts at Capital Economics, in a note…

“’The growing likelihood of a Greek default may also weigh on sentiment generally, though we expect it to provide further safe-haven support for gold. Our end-2015 forecast remains $1,400 per ounce,’ they wrote.” (“Gold slightly lower after PPI data,” MarketWatch, 6/12/15.)

Compelling Technical Case for Silver: Money Morning
Money Morning editor Jim Bach explained why technical indicators make a compelling case for buying silver.

“We have recommended that you buy silver at the current low levels for months. Not necessarily because silver's due for a huge spike – although that case was made in our 2015 silver price forecast – but because if you buy silver in small allocations, it can act as insurance for your broader portfolio in case markets go south…

"’I have physical silver,’ Money Morning Defense & Tech Specialist Michael A. Robinson said earlier this year. ‘I might have bought some at the top, but I don't care what the price goes to; I will not sell that physical silver. It's there for a reason – just like I have insurance on my car, I have insurance in case of a disaster…’

“Silver is a much more thinly traded market than its sister metal, gold. There is also a lot of overlap in the profiles of traders who buy silver and gold. Both metals serve as safe-haven assets. Say there's some geopolitical tensions abroad, or the markets panic – you are likely to see a lot of money pour into the gold markets. And residual precious metal interest will then find its way into silver as well…

“Bottom Line: Silver is good investment insurance. It's volatile, but it's also good protection. Right now, as the technical indicators align, you could buy silver at a time when it's poised to see more long-term upside with the day-to-day volatility, as opposed to this two-year downtrend it has experienced.” (“Technical Case to Buy Silver Getting More Compelling,” 6/2/15.)

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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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