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Gold and Silver Prices
Gold prices fell this week, pressured by a stronger dollar and expectations that, despite weakness in the U.S. economy, the Federal Reserve will raise interest rates.
“Gold slid to an eight-week low on Friday and was heading for a fourth consecutive weekly drop as growing speculation that the Federal Reserve will press ahead
with interest rate hikes hurt investor demand. The metal fell for seven straight sessions to Thursday, its longest run of losses in more than six months, after minutes of the Fed's latest policy meeting indicated last week that a rate rise may be on the cards sooner rather than later.
“That view has been consistently supported by central bank officials this week. An increase in U.S. rates would raise the opportunity cost of holding gold, while boosting the dollar, in which it is priced….” (“Gold heads for fourth weekly drop as U.S. rate view weighs,” Reuters, 5/27/16.)
Gold ended the week down $39.10, closing at $1,213.80. Silver prices closed at $16.30, down $0.30.
Ideal Time to Buy Gold; Prices To New Record Levels – CNBC
Chief Market Analyst for the Lindsey Group, Peter Boockvar, told CNBC’s “Futures Now” that gold prices will like rally above prior record highs.
“In order to be bearish on gold, you have to believe that the Fed is going to embark on 100 to 200 more basis points of hikes over the next couple of years, which I think is completely unrealistic. And also you’re looking at gold not just what the Fed may do but what’s going on with interest rates around the world. We know there are trillions of dollars of sovereign bonds and debt with negative yields which puts gold with a positive … rate of return …
“Looking at the relative strength index, gold is the most oversold since mid-December. So this is an ideal opportunity for those who have not gotten in to get in now… This is just the beginning of a new bull market in the metals…
When asked whether gold prices will return to the record highs of 2011, Mr. Boockvar said, “I don’t when it will happen; I do think it will happen though. If it is a new bull market, if I’m correct with that, typically new bull markets exceed the prior bull market peak at some point. Whether it happens in a couple of years, I’m not sure when but I’m pretty confident that it will get up to those levels and we’ll likely exceed those levels as markets tend to overshoot….” (“Futures Now Boockvar on Gold,” CNBC, 5/24/16.)
Higher Interest Rates Should Not Stop Gold Rally – Jessup
Julian Jessop, head of commodities for Capital Economics, explains why the traditional view that higher interest rates result in lower gold prices may be wrong.
“Capital Economics’ head of commodities Julian Jessop reckons that even the two more interest rate rises he expects this year needn’t stop the gold price rally (the metal is up nearly 19% for the year so far)… Prices have indeed faltered this week in the wake of the hawkish minutes of the last meeting of the rate-setting Federal Open Market Committee. ‘However, there is surely more to say than this; after all, gold and silver prices actually rallied in the weeks and months after the Fed first raised rates last December…’
“Once yields stabilised, gold continued to rally. And Jessop attributes the strength to two things: persistent weakness in the dollar and renewed interest in inflation hedges. And those supports could yet hold. ‘The upshot is that gold can still rally, especially if US wage and price pressures continue to build… Indeed, even our forecasts assume that the Fed will continue raising rates only gradually and to a still-low level by past standards, which may fuel concerns that it is falling behind the curve on inflation.’
“So where does Jessop see gold going from here? He thinks it will be at $1,350 at the end of 2016. And Jessop isn’t the only one who likes the gold price from here. Blackrock and JPMorgan are only the latest big names to make approving noises about the metal’s chances as 2016 goes on. Goldman Sachs remain perhaps the most stubborn bear but even analysts there have upped their short-term price call….” (“Gold price need not fear higher US rates: Capital,” News.Markets, 5/23/16.)
Gold May Rise to $1800 by 2017 – Emirates CIO
Gary Dugan, chief investment officer for wealth management at Emirates NBD PJSC, is advising clients to allocate up to 10% of their portfolio into gold bullion.
“Gold may rally to $1,400 an ounce in the near term and go on hit $1,800 by the end of next year as the world’s central bankers err, according to the largest lender in the United Arab Emirates, which is advising clients to hold up to 10 percent of portfolios in bullion and buy recent dips.
“A premature hike by the Federal Reserve may lead to a slide in inflation, a pullback in growth and greater volatility, causing investors to shun risky assets, according to Gary Dugan, chief investment officer for wealth management at Emirates NBD PJSC. Should the Fed stumble by tightening, investors’ faith in the dollar will be eroded, buoying bullion, said Dugan.
“Gold has rallied 18 percent this year on haven demand as investors doubted the Fed’s resolve to act in 2016 amid lackluster growth. At the same time, central bankers in Europe and Japan have adopted or deepened negative rates, spurring a debate among investors about the limits of monetary-policy effectiveness…
“’If we give up on the central bankers, there’ll be a kind of loss of hope,’ said Dugan. Should U.S. policy makers go for a hike, ‘people will be saying ‘Well if you’re maybe increasing interest rates then cutting them back again, which is what’s happening in every other part of the world, then you’ll be on gold”.’ (“Gold Favored as Fed May Have to Backtrack, Mideast Bank Says,” 5/23/16.)
Fed’s War on Savers Sends Investors to Gold – Seeking Alpha
Seeking Alpha’s newsletter included a commentary noting the Federal Reserve’s policies severely penalizes savers and has led to the rush to own gold.
“Summary: Central Banking monetary policy for years has rewarded the hyper-consumer and punished the saver. With the threat of negative interest rates and a move to a cashless society surprisingly real the appeal of gold as a store of value grows. Two of the greatest macro investors of the past 40 years have both independently made gold a sizable position in their portfolios…
“Those of our society that enjoy loading up with debt have benefited from the constant lowering of rates that our Central Bankers have concocted. Meanwhile anyone who is fiscally conservative and has religiously saved his or her earnings has suffered. The biggest victims are those people now entering retirement who were raised by parents that lived through the Great Depression.
“It seems that there truly is a war on savers and it keeps getting worse and it is a global phenomenon. Interest rates that are shockingly low in the United States are actually high relative to much of the rest of the world…
“Anyone with cash deposited with American financial institutions is already earning a pittance on that money. What is going to happen if our society goes cashless and we have no option but to transact electronically? Will we have to pay for the privilege of giving the banks our money to lend to their customers? …
“It isn't just the tinfoil hat wearing worried about the sky falling crowd that is interested in owning gold these days. Two of the greatest investors of the last 40 years have been adding sizable amounts of gold to their portfolios… We think investors should be paying attention to the fact that both of these gentleman are drawing the same conclusion. There may not be two better macro investors on the planet.” (“The Central Bank War On Savers: And You Wonder Why People Are Choosing Gold?” Seeking Alpha, 5/26/16.)