Gold Is Necessary For Long Term Protection – Greenspan

Release Date: 
Friday, February 17, 2017

Gold prices enjoyed another positive week as investors continue to acquire this safe haven asset to protect against domestic and international uncertainty.

“Gold prices are modestly firmer and near the recent for-the-move high in early U.S. trading Friday. The precious metal is supported by a near-term technical posture that remains bullish. Prices are in a two-month-old uptrend on the daily chart. Some ongoing safe-haven demand continues to support the gold market…

“Over the past few weeks, there has been a shift in the market place’s major, overall focus and concern: from central banks’ monetary policies and their upcoming plans, to the economic and fiscal policies of the new U.S. presidential administration. Most agree President Trump is more of a wild card for world markets than any other U.S. president in modern history. An unconventional press conference held by Trump Thursday did not assuage concerns among many about Trumps unpredictability. This is bullish for the gold market….” (“Gold Up, Near Recent High, On Safe-Haven Demand, Bullish Charts,” Kitco, 2/17/17.)

Gold ended the week up $1.70, closing at $1,233.90. Silver prices closed at $18.05, down $0.35.

Gold Is Necessary For Long Term Protection – Greenspan
The World Gold Council published an extensive report regarding the economic risks we are facing in 2017. The report included interviews with prominent analysts and central bankers such as Dr. Alan Greenspan, former Chair of the Federal Reserve under President Reagan.

Dr. Alan Greenspan, former Chairman of the Federal Reserve: “Significant increases in inflation will ultimately increase the price of gold. Investment in gold now is insurance. It’s not for short-term gain, but for long-term protection. I view gold as the primary global currency. It is the only currency, along with silver, that does not require a counterparty signature. Gold, however, has always been far more valuable per ounce than silver. No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counterparty. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC….”

Celia Dallas, Chief Investment Strategist at global investment firm Cambridge Associates: “Investors face a wide range of geopolitical and macroeconomic risks that are well recognised, from prospects for disintegration of the European Union to a hard landing in China, to trade wars and military conflicts … Diversification will continue to prevent investors from owning too much of the worst performing assets, which are often the best recent performers … In the current environment of swelled central bank balance sheets and competitive currency devaluations, we regard gold as a useful addition to portfolios… the risk that currencies broadly depreciate relative to gold in today’s environment makes gold a superior form of protection against this risk.”

Erkan Kilimci, Deputy Governor at the Central Bank of the Republic of Turkey:  “As reserve managers, we are mandated to follow three basic principles: safety, liquidity and returns… We cannot just continue to do what we once did, because the environment has changed and there is no early recovery in sight. Quantitative easing has reduced liquidity and means that many government bonds are producing negative yields. Under this scenario, old assumptions about which assets are highly liquid and risk-free need to be reassessed – and it is here that gold comes into its own. Broadly speaking, reserve assets represent a nation’s wealth accumulated over many years. As gold has no credit risk, it is one of the safest assets a nation can hold. It is also one of the most liquid assets available so it plays an incredibly useful part in a central bank portfolio. I believe that we have neglected the importance of gold in recent years. As an asset, it has certain unique features, not just because it is safe and liquid, but also because it is valued and in demand across the world. So today, I think we need to revisit this treasured asset and try to understand why it has always been held in such esteem and its role within a diversified portfolio. Of course, asset allocation is dynamic and market dependent, but in Turkey we allocate 13% to 15% of our total reserves to gold. And we firmly believe that longterm asset holders should also overweight gold in their portfolios, particularly against a backdrop of economic and political uncertainty….”

Dr Mark Mobius, Executive Chairman, Templeton Emerging Markets Group: “Perhaps one of the most important characteristics of gold is its liquidity. Gold is traded all over the world and a market for sellers and buyers can be found in large quantities. In addition, the most important argument for the use of gold in Shari’ah and other kinds of finance is the fact that it has been shown to be a long-term preserver of wealth. The study of paper money since the time it was first issued shows that no fiat currency has held its value for the long term. Over the long term therefore, gold has provided investors with a bulwark against the irresponsible issuance of paper money by governments all over the world. Franz Pick, a renowned expert on currencies who spent a lifetime studying money, once said: ‘Buy gold and sit on it. That is the key to success’….”  (“Gold Investor,” WGC, 2/17.)

Money Managers Throughout World Believe Gold Undervalued - MarketWatch
“The world’s biggest and most powerful money managers usually hate gold. But not today. The latest survey of nearly 200 money managers worldwide, controlling more than half a trillion dollars in investment assets, shows a sudden and rare burst of bullishness about the yellow metal.

“They’re worried about inflation, stagflation and global protectionism, and they think gold is the best insurance against all three. And at less than $1,300 an ounce, they also think, for only the third time in a decade, that it is undervalued…

“This is the surprising and remarkable takeaway from the latest Bank of America Merrill Lynch monthly global fund manager survey. The survey is a key indicator each month of mainstream opinion among those who run the world’s investments. BofA surveyed 175 money managers with $543 billion in assets under management… By a net margin of 15%, opinion among money managers is that gold is undervalued… Only three times in the past 10 years has a majority believed gold was cheap. After the past two times — January 2009 and January 2015 — gold subsequently shot up in price. This is surely more than coincidence…

“The latest survey opinion is of more than passing interest. These guys typically do not hold gold in their portfolios. Indeed, to buy some, most of them will have to go through investment committees, which takes weeks or months. But if they are interested, and they stay interested, that will presumably drive more demand for gold as an investment in the months ahead…

“The biggest risk is that Trump’s mercantilist policies will introduce a beggar-thy-neighbor round of reprisals elsewhere… In a mercantilist world, every country wants a cheaper currency. But currencies are a zero-sum game. The one that can’t be devalued by central bank activity is gold.

“The second biggest is surely uncertainty itself. You do not have to be a critic of the current president to accept that he introduces a massive amount of uncertainty into governance and policy. (His biggest supporters like him pretty much for that reason.)

“In this scenario gold is an insurance policy rather than an investment mainstay. So-called “gold bugs” typically hold a lot of their portfolio in the metal, sometimes a third or more. Professional money managers typically hold nothing. Holding 5% or 10% of your portfolio in gold doesn’t seem unreasonable.” (“Money managers no longer hate gold, saying it’s undervalued,” MarketWatch, 2/15/17.)

Uncertainty To Drive Gold Prices – Chesler
Asset Manager Russel Chesler told CNBC views that political uncertainty is “off the charts,” a factor that will support gold prices over the next few years.

“Uncertainty in the next few years over the term of Donald Trump's presidency will boost the gold market, an asset manager said Tuesday. ‘If there's a way to measure uncertainty in the next four years, we would say it's basically off the charts at this point in time,’ said VanEck Australia's director of investments and portfolio strategy, Russel Chesler.

“He cited Trump's unpredictability, ‘unconventional way of governing’, executive orders and anti-trade stance as contributors to risks in a market that used to be focused on the Federal Reserve… Other factors supporting gold's role as an inflation hedge and safe haven including rising U.S. inflation expectations, Brexit, elections in several European countries and Trump's proposed tax cuts which will mean there will be ‘debt coming for a long time’, he added….” (“Trump uncertainty will continue to buoy gold prices: Asset manager,” CNBC, 2/14/17.)

Governments To Use Digital Cash To Control Citizens – Rogers
In an interview with the financial podcast MacroVoices, financial commentator and investor Jim Rogers warned the move towards a cashless society will allow governments to control their citizens and eliminate their freedom. Mr. Rogers also predicts our next economic collapse will be greater than anything we’ve ever seen.

“Governments are always looking out for themselves first, and it's the same old thing that has been going on for hundreds of years. The Indians recently did the same thing. They withdrew 86 percent of the currency in circulation, and they have now made it illegal to spend more than, I think it's about $4,000 in any cash transaction. In France you cannot use more than, I think it's a €1,000…

“Many countries are already doing this. Some states in the US you cannot make cash transactions above a certain amount. Governments love it. Then they can control you. If you want to go and buy a cup of coffee, they know how many you drink, where you buy them, etc., if they can all put it into electronic formats and they will. The world is all going electronic…

“When it's done, the governments are going to be very, very happy they are going to say they're doing it for our own good, this is not them, this is for our good. That they're doing this, but it’s coming, and it's going to be a whole different world in which we live. Probably we are not going to have as many freedoms as we have now even though we are already losing our freedoms at a significant pace…

“[G]et prepared because we're going to have the worst economic problems we've had in your lifetime or my lifetime and when that happens a lot of people are going to disappear.
In 2008 Bear Stearns disappeared, Bear Stearns had been around over 90 years. Lehman Brothers disappeared. Lehman Brothers had been around over 150 years… So the next time around it's going to be worse than anything we've seen and a lot of institutions, people, companies even countries, certainly governments and maybe even countries are going to disappear. I hope you get very worried….” (“Jim Rogers: Macro Outlook in the Trump Era,” MacroVoices 2/9/17.)

$41B Hedge Fund Recommends Gold As Political Insurance – Bloomberg
The manager of BlackRock’s $41 billion BlackRock Global Allocation Fund is advising investors to add gold to their portfolios as insurance against “hidden” political uncertainty.

“Investors should probably be a little more nervous, according to one BlackRock Inc. money manager… While the stock surge and below-average volatility show investors are more optimistic, markets are underpricing global political risks, said Russ Koesterich, who helps manage the $41 billion BlackRock Global Allocation Fund. He recommends gold as insurance.

“Looming elections in Europe and political uncertainty in the U.S. are among developments that could shift investor sentiment, Koesterich said. Adding to the threat is the potential impact of Britain’s exit from the European Union and a debt crisis in Greece… ‘That hiding political risk is not reflected in markets,’ Koesterich said… ‘People are not that nervous, and there are things that could go wrong, particularly when you think about all of the political risks. That adds to the argument for having gold in a portfolio….’” (“BlackRock Backs Gold to Hedge Market Risk,” Bloomberg, 2/16/17.)

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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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