Gold Is Now Good In Any Political Or Economic Scenario – Business Insider

Release Date: 
Friday, March 10, 2017

Gold prices remained above $1200 this week despite earlier losses.

“While an imminent hike in U.S. interest rates is putting a downdraft on gold prices, bullion's allure as a safe haven is likely to limit the downside, traders and analysts say, owing to uncertainties in the United States and Europe…

“’The expectations of rate hikes are already priced into gold unless the expectations grow to four hikes, which we think is unwarranted,' said analyst Dominic Schnider of UBS Wealth Management in Hong Kong. ‘With a more hawkish Fed, there is no incentive to chase gold. But, the disappointment potential on President Donald Trump is very high. The Congress will not give what he wants…’

“Speculative long positions held by hedge funds and money managers in COMEX gold have nearly tripled this year, suggesting a fresh round of allocations into gold in 2017… Increasing inflation across a number of major economies will also likely dampen appetite for fixed income investments and support gold, said UBS's Schnider… Meanwhile, gold is expected to be boosted by political risks stemming from Britain's exit from the EU and upcoming contentious elections elsewhere in Europe… ‘People in Europe face uncertainty every day... when prices come down, they buy more.’” (“Bets on gold hold ground even as Fed rate hike looms large,” Reuters, 3/10/17.)

Gold ended the week down $48.30, closing at $1,205.50. Silver prices closed at $17.12, down $0.93.

Gold Is Now Good In Any Political Or Economic Scenario – Business Insider
Business Insider reported that investors are expected to go on a massive buying spree in the Spring as chaos and uncertainty spurs safe haven buying.

“‘Trumphoria’ is over—at least as far as the stock market rally is concerned. But this is exactly the point at which gold becomes exceptional, and one little-known explorer is spectacularly poised to cash in on the biggest Spring rally gold has seen in a century…

“The timing is critical: Early March is the traditional seasonal lull in gold, right before the spring rally. But this year, it’s an entirely different ball game. Amid the ‘Trumphoria’ stock market surge we saw a radical shrugging off of gold while everyone was paying attention to fantastically over-valued stock markets. Now that rally has ended, we’re staring down a massive gold-buying spree that should take off in mid-March…

“There has never been a more promising time in the commodity price cycle to get in on gold… and as Trump continues to boost gold no matter what he does or how long he lasts, demand seems certain and prices brilliant…

“Gold thrives on chaos, and even the slight possibility of impeachment keeps gold prices up. But gold is now good in any scenario. If he remains in office, Trump will pursue highly inflationary policies, and while gold loves chaos first and foremost, inflation is its mistress.

“Geopolitically, we haven’t seen this level of pending global chaos in decades, and… that is great for gold… With gold futures up 10% and spot prices up almost 7.5% in the first quarter, history is preparing to repeat itself with another gold rush… And by mid-March, they’re going to be loving it even more as the Spring buying rally gets off the ground like never before.” (“The next big gold rally could happen as soon as this spring,” Business Insider, 3/9/17.)

Gold Ready For $200 Jump In 2017 – Bank Of America
CNBC reported that Bank of America is forecasting a significant jump in gold prices by the end of this year.

“Gold is poised to make a big jump by the end of the year, at least according to Bank of America. The corporate and banking division says it expects the price to rise by around $200. That would put the price of gold at $1400 by December… Analysts at Bank of America/Merrill Lynch state that even though the commodity has been under pressure as a run up to the next Federal Reserve bank hike, there were reasons for optimism… Inflation and other uncertainties like elections in Europe tend to prop up the yellow metal. The bottom line: Bank of America says to bank on gold.” (“Bank of America says to bank on gold,” CNBC, 3/9/17.)

President’s Tax Plan Positive For Gold
A commentary in the financial website TheStreet explains why President Trump’s tax plan along with other factors will send gold prices higher.

“I believe the argument for investing in gold remains compelling both in the near- and long-term, and a Trump tax-reform plan should only help… There are several reasons why I believe the commodity… will move even higher both short- and long-term, but let's focus on the current consensus as to why gold is rallying -- inflation. Gold has long been used as a store of wealth and hedge against inflation and that trade seems to be back in vogue...

“The Trump tax plan seems to promise increased government deficits through both additional infrastructure spending and tax reductions. This would certainly add to an inflation story that's already gaining steam.

“Former Federal Reserve Chairman Alan Greenspan explained another reason…: ‘I view gold as the primary global currency.’… This view of gold as a "currency among nations" will only grow as individual nations continue to be manipulate fiat currencies. Although the dollar remains central to global trade, many nations are moving away from dollar-denominated trading and gold reserves have once again become important to central bankers…

“Long term, no current tax plan or government programs seem equipped to deal with the huge debts that the U.S. government and private businesses incurred over the past 10 years. This increasingly crippling debt structure -- both corporate and governmental -- will lead wealth away from current portfolio allocations to those not encumbered by debt. With gold serving as a way to store wealth away from a structurally flawed financial system, I think markets will only increasingly recognize its value.

“Lastly, gold seems like a bargain to me at current levels... Add it all up and I believe that there's still plenty of value in gold.” (“Trump Tax Plan Could Make Gold Great Again,” TheStreet, 3/6/17.)

Reasons For Owning Gold “Strong As Ever” – Forbes
Forbes contributor Stephen McBride told investors that now is a great time to add gold to their portfolio.

“Historically, the yellow metal has done well in times of uncertainty. While uncertainty rose following the election, gold fell. This was due to optimism surrounding Trump’s pro-growth policy announcements. However, since the inauguration, some optimism has evaporated, and investors are recalibrating their expectations and timelines for actual policy implementation. As uncertainty surrounding immigration policies, the future of Obamacare and Dodd-Frank, and tax cuts continues, gold will be a likely beneficiary…

“The change in the drivers of economic growth is also good for gold. Since the election, it has been politics—not central banks—steering markets higher. This represents a major sea change. While the Fed’s actions post-financial crisis have been predictable, Trump is anything but. Therefore, we can expect twitchier markets ahead…

“Increasing ambiguity has led to another positive development for gold—the drop in the dollar… The dollar’s decline helps gold in two ways. First and foremost, gold and the dollar have a strong inverse relationship. When gold rises, the dollar falls—and vice-versa. Secondly, as gold is priced in US dollars, when the greenback falls, gold becomes cheaper for foreign buyers…

“The situation in Europe also looks promising for precious metals. Following the “Brexit” vote last June, gold rose 7% in less than two weeks. If you thought Brexit cast doubt over the future of the EU, wait until you see 2017’s political calendar…

“Besides political happenings, the developing economic picture looks positive for gold … Adding to the optimism is the return of inflation. In December, the consumer price index (CPI) recorded 2.1% year-over-year growth. Expected inflation, measured by the 10-year breakeven rate, has consolidated above 2%. Both numbers are at their highest levels since 2014. As the biggest driver of the gold price is real rates, this is a huge plus for the metal. At the moment, the negative correlation between gold and real rates is the strongest since records began in 1997 …

“Following these developments, gold moved above its 100-day moving average (MA) last week… It’s worth noting the last two times it did this, gold advanced 18% and 13%, respectively. With the Fed in a tricky situation regarding interest rates—and ambiguity likely to continue to surround the political arena—we may be in for a wild ride in 2017. Given the uncertain outlook and improving fundamentals for gold, now is a great time to add the yellow metal to your portfolio….” (“The Reasons For Owning Gold Are As Strong As Ever,” Forbes, 3/7/17.)

Manager Of $2.9 Billion Fund Invests In Gold
Alec Cutler, who runs the $2.8 billion Orbis Global Balanced fund, has allocated a portion of the fund in gold due to concerns about our political and economic future.

“[Cutler] told What Investment, ‘if you look at the different possible economic scenarios we are faced with now. The first is that we are all going to become like Japan, with no growth, and very low bond yields. Well, the number one reason not to own gold is that it pays no income, but in this scenario, bond yields are very low or negative so nothing pays an income, and that’s good for gold.’

“Cutler continued, ‘The second scenario people look at right now is that we end up like in the 1970s, with stagflation, very high inflation and very little growth. Well in times of very high inflation, gold does well as a store of value. It did well the last time we had this scenario… ‘And maybe the risk that people are under-estimating, the geo-political risk, with the various people that are in power in the US and in Russia, and the people that could get elected in Europe this year, there is a lot of risk out there.’

“The veteran investor continued, ‘and in that situation, gold could do very well, it is the perfect asset for that environment… the current situation that we have is kind of goldilocks, with the economy neither too hot nor too cold, not ideal for gold, but when you look at the difference scenarios, two of the three are good for gold.’

“Cutler next turned his thoughts to what he called the ‘fundamentals’ of the gold market.
He commented that, ‘the last time we had a low gold price something changed in the market, at the company level. The companies are no longer run by gold bugs, they are run by private equity guys and investment banks, and those guys care about things like profits and dividends. So when the gold price went from $1000 to $1200, in the past the gold bugs running these companies would have been about opening a new mine. The guys running the companies now said, well let’s pay down debt, and if there is cash left after that, then they pay a dividend, so that has lead to a change, in terms of gold supply….’” (“Why I own gold right now, by investor of $2.8 billion,” What Investment, 3/10/17.

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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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