Gold Important for Wealth Stability and Preserving Purchasing Power

Release Date: 
Friday, November 20, 2015

Gold and Silver Prices
Gold remained mostly ranged bound this week as investors continue to consider the implications of a likely interest rate hike in December.

"’We are still unclear how much of a rate hike there will be by the Fed, but given all the comments which we had from the FOMC minutes, one element is clear -- it is not going to be very aggressive,’ Ava Trade market analyst Naeem Aslam said. ‘Hence we have seen the massive selling pressure getting squeezed out.’

“Speculation that the Federal Reserve will lift interest rates for the first time in nearly a decade this year has intensified since the release of strong U.S. jobs data earlier this month, which triggered a sharp drop in gold prices…

“’We still remain in thrall to the Fed,’ Marex Spectron said in a note on Friday. ‘Although a lot of the possible December rate rise is factored in, the markets will still react to speeches and figures.’” (“Gold price extends gains on rebound from near six-year lows,” Reuters, 11/20/15.)

Gold finished the week down $6.40, closing at $1,078.00. Silver prices closed the week at $14.23, down $0.08.

Gold Important for Wealth Stability and Preserving Purchasing Power - Brecht
Kira Brecht, a financial analyst and managing editor of the Inc. 500 TraderPlanet, penned a commentary explaining why gold is necessary to combat the risks to the global economy.

“Let's take a look at a number of dynamics that are important for long-term gold investors to consider.

“Global growth picture. Credit Suisse estimates global growth at 2.5% in 2015… This growth rate still remains sluggish and below historical trend growth levels, despite seven years of extraordinary monetary policy conditions from the global central banks…

“The Fed, how far, how fast? The U.S. Federal Reserve will likely finally hike rates at its December 15-16 policy meeting…  Increasingly, economists are warning that the end point of the Fed's next tightening cycle will be lower than historical norms... This becomes problematic in the future once the next recession hits. It suggests a limited scope for future Fed rate cuts to stimulate the economy and hints that quantitative easing programs may be the new normal for global central banks.

Other big economies remain challenged. Europe and Japan are still struggling with low growth and low inflation outlooks...

Other dynamics that matter to gold. China continues to power its way onto the world stage… China is seeking and gaining more influence and attention on the world stage. This is a longer-term issue for gold investors to monitor. For now, the U.S. dollar is the world's reserve currency… The U.S. dollar will not maintain this status forever. Holding gold is one avenue to protect purchasing power and wealth stability amid the uncertainty over the value of fiat currencies like the dollar.

Putting it all together. Gold has been out of favor this year... But, the more important dynamics for gold remain the larger global growth challenges. With other major economies in easing mode and the Fed's limited ability to aggressively hike rates, gold remains an important safe haven investment. There is a new normal in the global central bank community and as the world economy strives to adjust and changing demographics, shifting economic power points and slower growth conditions. In this environment, gold will remain an important vehicle for long-term investors focused on preserving purchasing power and wealth stability. (“
Look Around: The World Economy Is Not Booming,” Kitco News, 11/20/15.)

Central Banks Wage War on Cash; Threaten Financial Security – Giambruno
Writing for Gold-Eagle, investment analyst Nick Giambruno warned that central bankers are trying to create a cashless society in a move to monitor and regulate all financial transactions.

“Central planners around the world are waging a War on Cash… The War on Cash is a favorite pet project of the economic central planners. They want to eliminate hand-to-hand currency so that governments can document, control, and tax everything. This is why they’re lowering the threshold for mandatory reporting of cash transactions and, in some instances, simply making it illegal to pay cash.

In the U.S., central planners ratchet up the War on Cash every time the government declares a made-up war on something else…a war on crime, a war on drugs, a war on poverty, a war on terror…They all end with more government intrusion into your financial affairs…

The Federal Reserve is at the center of the War on Cash. Its weapons are inflation and control over the currency denominations… Even though the Federal Reserve has devalued the dollar over 80% since 1969, it still refuses to issue notes larger than $100. This makes it inconvenient to use cash for large transactions, which forces people to use electronic payment methods.

“This, of course, is what the U.S. government wants. It’s exactly like Ron Paul said: ‘The cashless society is the IRS’s dream: total knowledge of, and control over, the finances of every single American…’

“Sweden, Denmark, and Switzerland all have negative interest rates. Negative interest rates mean the lender literally pays the borrower for the privilege of lending him money. It’s a bizarre, upside down concept.

“But negative rates are not some European anomaly. The Federal Reserve discussed the possibility of using negative interest rates in the U.S. at its last meeting. Negative rates could not exist in a free market. They destroy the impetus to save and build capital, which is the basis of prosperity…

“The War on Cash and negative interest rates are huge threats to your financial security. Central planners are playing with fire and inviting a currency catastrophe. Most people have no idea what really happens when a currency collapses, let alone how to prepare…” (“The World’s First Cashless Society Is Here - A Totalitarian’s Dream Come True,” Gold-Eagle, 11/18/15.)

Fed Will Fail To Meet Benchmark Interest Rates Before Next Recession-Citigroup
“The U.S. Federal Reserve will fail to raise its benchmark interest rate to 2 percent before the next recession takes hold and will likely opt for negative interest rates in the next downturn, according to the Citigroup's chief economist.

"’We know that there are going to be few rate increases (by the Fed), and not to a very high level,’ Willem Buiter told CNBC Friday. ’We may be at barely 1 percent at the end of 2016 and I don't think that in this cycle we are going to see 2 percent. We will be back at the zero lower bound before you can say 'cyclical downturn'."

“Buiter criticized the U.S. central bank, which he believes has been engaged in ‘systematic forward misguidance’ and ‘maximizing the degree of uncertainty…’

“The economist has purveyed a bearish view of the global economy recently, telling CNBC in October that the world faces a period of contraction and declining trade next year.” (“Citi's Buiter: 'Inconsistent' Fed will never reach normal,” CNBC, 11/20/15.)

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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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