Gold Selling at “Massive Discount”

Release Date: 
Friday, April 3, 2015

Gold and Silver Prices

Despite profit taking on Thursday, gold prices edged higher during this shortened trading week. “Gold prices fell from a one-month high Thursday as some traders chose to lock in gains ahead of U.S. employment data, which comes out over a long weekend for metals traders… Investors were concerned because the market would be closed on the day that a major U.S. economic indicator would be released.” (“Gold Falls Ahead of Jobs Data,” WSJ, 4/2/15.)

As it turned out, the job data signaled continuing problems with the economy. “U.S. employers sharply slowed their hiring in March to the weakest pace in more than a year, the latest sign that the economy stumbled during a first quarter hampered at least in part by harsh winter weather… The overall tone of this report was quite weak and it underscores the slowdown in domestic growth momentum, as the recovery continues to navigate again the headwinds coming from the harsh winter conditions, the strong dollar and the weak global backdrop,’ TD Securities economist Millan Mulraine said in a note to clients.” (“Jobs Report: U.S. Adds 126,000 Jobs; Unemployment Steady at 5.5%,” WSJ, 4/3/15.)

Gold finished the week --- up $3.60, closing at $1,203.00. Silver prices closed the week at $16.76, down $0.31.

Gold Selling at “Massive Discount”

Research analyst and Kitco contributor Moe Zulfiqar sees sharply higher gold prices due to central bank demand and limited supplies.

“If you are wondering where gold prices are headed next, then just look at the demand and supply. Pay attention to the data. These two most fundamental factors of price suggest gold is selling at a massive discount…

“Over the past few years, I have been very focused on what the central banks are doing. I believe they are going to be the biggest driver of gold prices going forward. As it stands, they are buying regardless of the price…

“So basic economics tell us that with rising demand from central banks, we need production to increase, too. (Remember: India and China are buying a massive amount of gold bullion as well, as my colleague John Whitefoot notes in his gold price forecast for 2015.) Sadly, the supply-side numbers are anemic, and they’re only going to get worse…I am looking at the yellow metal for the long-term. Right now, the demand and supply situation is completely distorted—increasing demand and declining supply, yet prices are low? Basic economics tell me that prices will see a violent move to the upside.” (“Gold Prices Distorted: How to Profit When Reality Hits the Gold Market,” Kitco, 4/2/15.)

Gold to Become “Seriously Scarce:” Goldman Sachs

“In another two decades, rare commodities may become seriously scarce. According to Goldman Sachs, the world has about 20 years’ worth each of known minable reserves of gold...

“’The combination of very low concentrations of metals in the Earth’s crust, and very few high-quality deposits, means some things are truly scarce,’ Eugene King, European metals and mining analyst at Goldman Sachs, wrote in a recent research note. ‘Gold has been used as a measure of wealth for more than 4,000 years, as the ancient Egyptians soon worked out that gold was not only shiny and heavy, but rare…’

All told, their ‘relatively scarcity and the market’s belief that new discoveries will be limited, is what drives the price of these super-rare commodities,’ King said. Making gold rarer still, production of gold may also hit a peak this year.” (“In 20 years, the world may run out of minable gold,” MarketWatch, 3/31/15.)

Greece Planning for Possible Default, Alternative Currency

The Telegraph reports that Greece is preparing for a possible default of its next payment to the International Monetary Fund.

“Greece is drawing up drastic plans to nationalise the country's banking system and introduce a parallel currency to pay bills unless the eurozone takes steps to defuse the simmering crisis and soften its demands.

“Sources close to the ruling Syriza party said the government is determined to keep public services running and pay pensions as funds run critically low. It may be forced to take the unprecedented step of missing a payment to the International Monetary Fund next week.” (“Greece draws up drachma plans, prepares to miss IMF payment,” The Telegraph, 4/2/15.)

Inflation? Bacon Cheeseburger Index Says “Yes”

Brokerage firm Convergex has devised an index to measure inflation based upon prices for a bacon cheeseburger.

Depressed by falling oil prices, inflation, as measured by the consumer price index, was zero for the 12 months through February…But the Bacon Cheeseburger Index, calculated by Convergex brokerage firm, tells a different story. It has jumped 7.7 percent over the last year. As you've probably surmised, this index is based on the price of bacon cheeseburgers.

A 17 percent surge in ground beef prices represented the biggest contributor to the index' move. Among other components, cheese prices rose 7.3 percent, white bread 3.4 percent and bacon 0.2 percent… ‘Yes, we know the Fed can't make more cows or milk or pigs,’ said Nick Colas, chief market strategist at Convergex. ‘But consumer attitudes regarding inflation are anchored in their shopping cart, as anyone who lived through the 1970s will tell you.’” (“Bacon Cheeseburger Index Shows 7.7 Percent Inflation,” Newsmax, 4/2/15.)

American Advisor Week In Review

Goldline provides a wrap-up of the week's precious metals news along with important commentary on the American Advisor Week in Review audio program: This week's data is presenting a bargain buying opportunity. Is this normal going into a holiday weekend?

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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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