Gold Should Be At $5,000 Per Ounce - Duffy

Release Date: 
Friday, July 14, 2017

Weak economic news and a lower U.S. dollar sent gold prices higher this week.

"Gold prices climbed to the highest in nearly two weeks on Friday after data pointed to weak U.S. inflation, raising doubts about the prospects of another interest rate hike this year. U.S. consumer prices were unchanged in June and retail sales fell for a second straight month. 'The downside surprise in inflation and retail sales data was not good news for the dollar index and investors have pushed their bearish bets further,' said Naeem Aslam, chief market analyst at Think Markets. 'Gold is the net beneficiary of this data as investors factor in the impact of the rate hiking cycle….'" ("Gold lurches higher after weak U.S. inflation, retail data," Reuters, 7/14/17.)

Gold ended the week up $16.20, closing at $1,229.40. Silver prices closed at $16.06, up $0.39.

Gold Should Be At $5,000 Per Ounce - Duffy
CME Group Chairman and CEO Terry Duffy spoke to Fox Business about the misplaced complacency of investors regarding world events which ultimately will send gold prices to new record highs.

"If you look at the price of gold today at around $1,200 per ounce, and you look back to the early 80s, it was trading at around $800 per ounce, and if you adjust for inflation, you should have gold somewhere around $2,000 to $3,000 per ounce but we don't. If you've looked at what's gone on in the world, it should probably be at $5,000 or $6,000 per ounce. But it's not and the reason is that we've become so jaded in whatever happens in the world that it's like yesterday's newspaper in five minutes. So people are dismissing some of these events to the point when one day you won't be able to dismiss them and you'll see a huge move in precious metals…." ("The Fed has frustrated and confused the markets: Terry Duffy," Fox Business, 7/12/17.)

Experts See Gold Prices As Buying Opportunity - CNBC
CNBC reported that several experts see gold's current prices as a buying opportunity as a hedge against future risk.

"Gold prices might be under pressure from the current 'risk-on' environment for equities and rising interest rates, but several analysts expect the price to recover and say the precious metal can provide investors some real risk protection…

"[I]nflation in the U.S. may prove beneficial for gold, according to Nitesh Shah, commodities strategist at ETF Securities. Gold is traditionally seen as a hedge against inflation… 'Gold still remains a very good hedge towards event risks and with key events like the escalation of tensions in the Middle East, or the sabre rattling between the U.S. and North Korea, we think that gold has potential to spike upwards should any of these tail events come to the fore,' he said.

"Gold's current price means also means it is now cheaper for investors seeking insurance against other assets falling, suggests Adrian Ash ... 'Gold and silver are highly likely to rise sharply if the sudden consensus that the ECB (European Central Bank) and even the Bank of England might join the Fed in cutting back stimulus evaporates just as quickly when they disappoint…'

"Meanwhile, Suki Cooper, a precious metals analyst at Standard Chartered Bank, also said the current price point is a buying opportunity. 'Gold prices closing in on $1,200 per ounce offers attractive opportunities to buy,' she said in a research note published Monday…." ("Time to buy? Gold experts see a sweet spot for bullion as inflation returns," CNBC, 7/11/17.)

Owning Gold Is "Fire Insurance" For Investors - Hathaway
John Hathaway, Senior Portfolio Manager for Tocqueville Asset Management L.P., issued his company's quarterly investor letter identifying several risks to the financial markets.

"We believe that the Fed's view of economic activity is not rooted in reality (see Q1 commentary), and that its stubborn pursuit of interest-rate hikes is likely to precipitate a bear market in equities and bonds. Under the headline 'Economic Conditions Signal Recession Risk,' Greg Ip wrote in the July 6 WSJ, 'If you drew up a list of preconditions for a recession, it would include the following: a labor market at full strength, frothy asset prices, tightening central banks, and a pervasive sense of calm. In other words, it would look a lot like the present…'

"Financial-market complacency seems (inexplicably, to us) to be based on confidence in a continuing economic expansion and a smooth transition (meaning pain-free in terms of market damage) to normalization of monetary policy and interest rates. We believe that these two expectations are incompatible and unattainable simultaneously. In fact, we believe that the likelihood of either occurring is miniscule…

"Should the Fed and other central banks fail to achieve the all-but-impossible task of returning to a normal yield curve without undermining financial-asset values, exposure to gold and related mining stocks represents a compelling investment proposition, if only as a hedge against increasing macro and market risks...

"Gold, as we have noted in a previous letter, has been the top-performing asset class since 2000, the dawn of radical monetary experimentation. We believe that a hard look at the facts suggests that a return to the normality of the past is unattainable, and that the captains of economic policy are living in a dream world. In light of these considerations, investor disinterest in gold and the implied expression of trust in the sustainability of current economic arrangements bewilders us, especially when even small exposure to the metal would be the financial-asset analog of fire insurance on one's home. We therefore recommend taking advantage of periodic pullbacks in the precious-metals sector to initiate or expand positions." ("Tocqueville Gold Strategy Second Quarter 2017 Investor Letter," July 10, 2017.)

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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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