Gold Highly Relevant In Strategic Portfolio - WGC

Release Date: 
Friday, January 13, 2017

Gold prices breached the $1200 level this week before retreating after profit taking on Friday. Nonetheless, gold prices ended the week higher to continue its positive streak for the beginning of 2017.

“Gold prices are modestly lower in early U.S. trading Friday, on downside correction after hitting a six-week high on Thursday. Still, the gold bulls are out of the shoot in good fashion to begin the new year… While Wednesday’s press conference by U.S. President-Elect Donald Trump was unsettling to much of the marketplace, it did help out safe-haven gold. Trump has made bold claims on how he’s going to improve U.S. economic conditions, but has so far provided very few specifics on how he’s going to accomplish such. It appears that traders and investors are becoming increasingly jittery about that situation as Trump prepares to take office late next week….” (“Gold Sees Mild Corrective Pullback From Recent Gains,” Kitco, 1/13/17.)

Gold ended the week up $24.70, closing at $1,197.90. Silver prices closed at $16.91, up $0.37.

Gold Highly Relevant In Strategic Portfolio - WGC
The World Gold Council published its Outlook 2017 which identifies six significant trends that will support gold in 2017.

“In 2016, investors around the world returned in large numbers to the gold market, as a combination of macroeconomic drivers and pent up demand kept interest in gold high. As we start the new year, there are some concerns that US dollar strength may limit gold’s appeal. We believe that, on the contrary, not only will gold remain highly relevant as a strategic portfolio component, but also six major trends will support demand for gold throughout 2017…

“Using the economic perspective from our guest economists as a backdrop, we believe there are six major trends in the global economy that will support gold demand and influence its performance this year: 1. Heightened political and geopolitical risks 2. Currency depreciation 3. Rising inflation expectations 4. Inflated stock market valuations 5. Long-term Asian growth 6. Opening of new markets…

“Gold is especially effective as a safe have during times of systemic crisis, when investors tend to withdraw from risk assets. As they pull back, gold’s correlation to stocks becomes progressively more negative and its price tends to increase. Gold historically performs better than other high-quality liquid assets during periods of crisis and that makes it an excellent liquidity provider of last resort…

“[O]ver the past century, gold has vastly outperformed all major currencies as a means of exchange … This difference between gold and fiat currencies can drive gold investment demand as investors seek to preserve capital from depreciating currencies… But gold’s relative steadfastness can also support central bank demand. To that end, central banks continue to acquire gold as a means of diversifying their foreign reserves and we expect them to continue to do so in 2017…

“Gold is becoming more mainstream… We expect this trend to continue and expand into Western markets, where pension funds have had to rethink asset allocation strategies following prolonged exposure to low (and even negative) interest rates. In our view, this will result in structurally higher demand….” (Outlook 2017: Global economic trends and their impact on gold,” WGC, 1/17.)

Investors Should Take Shelter In Gold As Politicians Attack Central Banks – Bloomberg
Bloomberg reported Christopher Mahon, the director of multi-asset investments for Baring Asset Manager, is acquiring gold as a safe haven shelter against political intervention in central bank policies.

“Baring Asset Management’s Christopher Mahon has one major conviction about 2017: it will be the year in which central-bank bashing by politicians becomes the new normal, so he’s seeking shelter in gold.

“’This year is the turning point,’ Mahon said in an interview on Monday. ‘For seven years or so, central banks have largely escaped critique even though one could argue that their policies have been pretty inadequate in many senses. It’s very plausible now that politicians stand up and throw stones at central bankers.’

“For the first time in more than two decades, politicians are encroaching on the autonomy central bankers expect to manage growth efficiently … Mahon is betting that gold will rise if political intervention causes central banks to miss inflation and growth targets. In the past few months he’s built up a 4 percent allocation to bullion in his 1.7 billion pound ($2.1 billion) Dynamic Asset Allocation Fund, which outperformed 80 percent of peers last year. Jim Rickards, author of New York Times best seller Currency Wars: The Making of the Next Global Crisis, is even more bullish: he recommends putting 10 percent into gold…

“For those who lose faith in central banks, gold may be the last holdout. It retains its appeal as an asset that once underwrote the monetary system and it can’t be created at will like currencies and bonds, said Matthew Turner, a Macquarie Group Ltd. Economist.  ‘Gold used to be the center of the global financial system, for that reason it has a reputation as a currency -- but as a currency that’s not issued by governments and not controlled by governments,’ Turner said…

“Baring’s Mahon… that while 2017 is a watershed, his conviction on the politicization of central banks is one that will play out over several years, making gold a safe bet for the long term. ‘The critique of central banks won’t be quick,’ Mahon said. ‘It will be one of those things that takes many years. We started with this very asymmetric central bank response in 1985 or so, and it’s taken years for people to see it as a problem.’” (“Central-Bank Bashing Has Gold Only Asset Safe From Meddling,” Bloomberg, 1/12/17.)

Gold Supported By Negative Interest Rates – Holmes
U.S. Global Investors CEO Frank Holmes sees the troubling trend of negative rates to continue in 2017 which will support gold prices.

“I find it curious that many in the financial media continue to have a bias against gold, even though it generated better returns in 2016 than 10-year Treasuries and the U.S. dollar, which performed half as well. And when it was up as much as 28 percent in the summer, they still didn’t have anything positive to say, arguing it had gone up too much.

“(Gold traders, on the other hand, have a much different opinion about the metal right now. A group of traders recently surveyed by Bloomberg revealed they are the most bullish on gold since the end of 2015, soon before it rallied in its best first half of the year since 1974. The traders cited geopolitical concerns, both in the U.S. and Europe, as well as stronger demand in 2017.)

“And isn’t it interesting that the same media figures who are biased against gold are usually the same ones who seem to have only disparaging things to say about Brexit and President-elect Donald Trump? What they don’t realize is that if Brexit and Trump succeed, so too do the U.K. and the U.S. Are they hoping Brexit and Trump will fail so they can be proved right?…

“Coming up on January 28, we have the Chinese New Year, when demand for the yellow metal historically has risen, along with prices. This will be the year of the fire rooster, one of whose lucky colors is gold. Throughout 2017, the precious metal should be supported by even deeper negative real rates, which could fall to their lowest level in two years as inflation outpaces nominal interest rate increases, according to UBS … Numerous times in the past I’ve shown that the yellow metal has tended to rise when real rates—what you get when you subtract inflation from the federal funds rate—fell into negative territory.…” (“The bullish case for gold in 2017,” Business Insider, 1/11/17.)

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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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