Investors Should Participate in Gold Rally – UBS

Release Date: 
Friday, July 15, 2016

Profit taking and positive economic news helped raise the U.S. dollar and send gold prices lower for the week.

“Gold edged lower on Friday and was set for its first weekly loss since May on improving global risk sentiment and a steadier dollar… After six weeks of gains, the longest rally since March 2014, the metal has come under pressure this week, down 2.5 percent so far. It was hit by strong U.S. non-farm payrolls data and as uncertainty around the implications of Britain's Brexit vote eased with the formation of a new government…

“’Investors are taking profits, but $1,300 is now a floor for gold and that is going to hold moving forward,’ ING Bank senior strategist Hamza Khan said. ‘Wider political issues such as the U.S. elections and then French and German elections next year are enough to support gold even though markets are rallying on the low interest rates
environment and the quest for yields….’” (“Gold on track for first weekly loss in seven,” Reuters, 7/15/16.)

Gold ended the week down $28.30, closing at $1,366.40. Silver prices closed at $20.30, down $0.05.

Investors Should Participate in Gold Rally – UBS
Forbes reported that two banking powerhouses, UBS and Credit Suisse, see gold entering a new bull market and are urging investors to include gold in their portfolios.

“It’s been a stellar six months for gold investors. The yellow metal has surged 28 percent year-to-date, its best first half of the year since 1974, and there are signs that the rally is just getting started. That’s the assessment of analysts from UBS and Credit Suisse, who see gold entering a new bull run. According to UBS analyst Joni Teves, gold could climb to $1,400 an ounce in the short term on macroeconomic uncertainty, dovish monetary policy and lower yields.

“’These factors,’ Teves writes, ‘justify strategic gold allocations across different types of investors’ and should encourage hesitant investors to participate…

“Joining UBS in forecasting further gains is Credit Suisse, which sees gold reaching $1,500 by as early as the start of next year. As Kitco reports, Credit Suisse analyst Michael Slifirski writes that ‘the surprise Brexit vote has solidified and intensified macro and political uncertainty and extended the time frame for a negative real rate environment in the U.S. and potentially abroad…’

“Like negative bond yields, negative real rates have in the past accelerated momentum in gold’s Fear Trade. We need only look at the end of the last upcycle in gold to see this to be the case. When gold hit its all-time high of $1,900 in August 2011, real interest rates were around 3 percent. A five-year Treasury bond yielded only 0.9 percent, and that’s before inflation took 3.8 percent. But as real rates rose, gold prices fell. Now the reverse is happening….” (“Gold Rally Just Getting Warmed Up According To UBS, Credit Suisse,” Forbes, 7/12/16.)

Gold has “Unlimited” Upside – Colvin
CNBC spoke with Tom Colvin the senior vice president of global institutional sales at Ambrosino Brothers, who believes the Federal Reserve’s policies create “unlimited upside” for gold.

“Gold just posted its longest weekly winning streak since July 2011, but if investors missed out on the recent rally, fear not. One trader says the commodity has "unlimited upside," and investors have the Federal Reserve to thank for it.

“On CNBC's ‘Futures Now’ this week, Tom Colvin said that gold will remain in a bull market that will only come to an end ‘when central banks take their hands out of the cookie jar.’ The Federal Reserve is unlikely to hike rates in the foreseeable future, despite a blockbuster June employment report on Friday.

“’The year-to-date rally in gold has been nothing short of spectacular, benefiting from what we have seen as a 'confused Fed' or a Fed lacking action,’ the senior vice president of global institutional sales at Ambrosino Brothers explained…

“Colvin also has bullish expectations for bullion. His near-term target for the precious metal is $1,400, roughly $50 above where it's currently trading. Gold has not been above that level in three years. ‘The market can take good news and bad news,’ Colvin told CNBC. However, ‘a confused Fed, saying one thing but doing another over and over invites buyers of gold to jump into the pool with both feet and they have….’” (“Gold has 'unlimited upside' because the Fed is 'confused' on policy: Trader,” CNBC, 7/9/16.)

Rewards for Gold Ownership Will Be “Momentous” – Hathaway
John Hathaway, senior asset manager for Tocqueville Asset Management, issued the fund’s gold strategy investor letter advising clients that gold’s powerful bull run is in its infancy.

“The precious metals markets have clearly turned the corner, becoming flat-out bullish following the extensive and painful correction from August 2011 to year-end 2015. Year-to-date through June 30, the US dollar gold price has increased 24.57 percent, while the XAU (Philadelphia index of gold and silver stocks) benchmark has increased 116.16 percent. Positive gold cycles have historically lasted for at least three to five years, and some longer. Despite the impressive year-to-date advance, we believe this cycle is still in its infancy, and that it promises to be extremely powerful.

We believe that fiscal and monetary policy in all developed countries has reached a dead end, and is all but bankrupt. More important, we maintain that the persistent application of and adherence to idiotic/unproductive public policies have substantially ramped up systemic risk. Investors are beginning to look to gold, fearing that the purchasing power of all paper currency – including the US dollar – is imperiled. The three-decade low in the pound sterling following the Brexit vote is a warning that the practice of central-bank-managed currency exchange rates is unravelling. Mainstream economists are beginning to express concern…

“It is impossible to know what headlines, and when, will drive more investors to acquire gold. We believe that the market situation for precious metals is identical to the 1999 bottom, which preceded a 12-year advance of 615 percent… It seems to us that we have entered a momentous period for gold: “weeks where decades happen.” The rewards of gold exposure, in our opinion, promise to be of historic magnitude. At such a moment, it would be counterproductive for investors to dwell upon issues of market timing. Gold is extremely under-owned, and therefore likely to react dynamically to even modest inflows. Despite strong recent gains, we believe that the current alignment of political and economic factors is unusually compelling. In our view, substantial gains lie ahead.” (“Tocqueville Gold Strategy Investor Letter
Weeks Where Decades Happen,” 6/12/16.)

Outlook for Silver is “Spectacular” - Turk
James Turk, the former head of commodities for the Abu Dhabi Investment Authority and precious metals analyst, told King World News readers that silver prices may be ready to skyrocket.

“We have been waiting for five years for silver to reverse course and turn higher, Eric, and now it has finally happened. Silver is breaking out to the upside.

“The strength we have seen so far this year is remarkable, and the power silver has shown over the last few weeks is icing on the cake…

“Silver is now evolving into a pattern called a “cup with a handle,” which potentially is very bullish. I say ‘potentially’ because that ‘handle’ is still being formed. So more of the story has yet to be told.  The pattern will only be complete when silver moves above the top of the cup (the green horizontal line), which is its record high of $50.

“Perhaps the chart pattern will fail, or perhaps the pattern will complete in the months ahead with silver moving higher to completely form the handle, which is what I expect…

“This means that silver has some catching up to do, which is another way of saying that it is undervalued compared to other commodities. In my view, silver is one of the most undervalued assets on the planet.

“In summary, the outlook for silver is spectacular, and my recommendation for both precious metals remains unchanged. Accumulate gold, and if you are inclined to accept the greater volatility, then accumulate silver as well on a cost-averaging program with monthly purchases, or quarterly if it fits your budget. By doing so you are saving sound money, which is a crucially important strategy to help protect your wealth.” (“ALERT: James Turk – The Price Of Silver May Finally Be Set To Skyrocket!” KWN, 6/11/16.)

$1400 Gold Just Start of Bull Market – VanEck
Investment firm VanEck issued a report stating that $1400 gold will be just the start of a new bull market.

“Although gold prices are down from last week’s two-year high, one investment firm sees $1,400 an ounce as just the start as the market remains in a new bull uptrend. In a report released Tuesday, Joe Foster, gold strategist at VanEck, said that the firm is expecting gold prices to reach $1,400 an ounce in the second half of the year, adding ‘and we do not believe it will end there…’

“What is the driving the next leg of the renewed secular bull market is the fact that investors are being more proactive, he said… ‘Many are seeing the looming potential for another financial crisis and making a strategic allocation to bullion as a hedge against systemic risk,’ he said.

Foster sees several factors in the global economy that will continue to support gold prices in the long term, including continued loosed monetary policy and low bond yields. Quoting the latest report from ratings agency Fitch, he noted that $11 trillion in sovereign debt is offering negative yields…

Foster also said that weak global growth and volatile currency markets will make gold an attractive investment… Turning to the U.S., Foster said that the 2016 presidential election also promises to be positive for the yellow metal, no matter what side wins the race….” (“Gold Price Of $1,400 Is Just The Start – VanEck,” Kitco News, 7/12/16.)

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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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