Merk: Gold “Purest Way to Play” Negative Interest Rates

Release Date: 
Friday, August 29, 2014

Gold and Silver Prices

Gold prices moved higher this week as geopolitical tensions escalated, but positive U.S. economic data kept gains in check. “Gold pulled back from one-week highs after stronger U.S. economic data cooled demand for the haven asset, but prices remain elevated as investors monitor escalating tensions between Ukraine and Russia…‘With the geopolitical tensions in Ukraine building up, the easiest trade is risk off, so we could see gold go up’…said Bill Baruch, a senior market strategist with iiTrader in Chicago.” (“Positive U.S. Data Tempers Gold's Rise,” Wall Street Journal, 8/28/14.)

Gold finished the week at $1,287.50, closing up $6.10. Silver prices closed the week up $0.04, at $19.48.

Merk: Gold “Purest Way to Play” Negative Interest Rates

Money manager and President of Merk Funds, Axel Merk, discussed why gold should thrive under the U.S.’s negative interest rate environment.

“Merk, who has $400 million under management, likes gold and explains, ‘The medium to long term reason why I like gold is I don’t think we can afford real positive interest rates. If you look at real interest rates, they have been negative. They have gotten more negative of late, and Janet Yellen is promising she is going to be late in raising rates. So, even as nominal rates go up, real rates are going to continue to be negative…I buy gold mostly because if I look 10 years out, and you think we are going back to the historic rate that we’ve paid on financing our deficit, we’ll be paying more than a trillion dollars a year to finance our national debt. We can’t afford that. So, that means the Fed is going to keep rates low, and we are not going to be paying a trillion dollars a year. Something is going to give, and gold is the purest way to play those sorts of scenarios.’” (“I Fear a Crash—Axel Merk,” ETF Daily News, 8/25/14.)

CBO Cuts Growth Outlook

The nonpartisan agency responsible for advising Congress on economic matters issued a dire warning regarding the U.S. economy.

“The Congressional Budget Office on Wednesday said it expects the U.S. economy to grow by just 1.5 percent in 2014, a 50 percent cut from the prediction it made six months ago. Back in February, CBO predicted that U.S. gross domestic product would see a 3.1 percent increase. But its latest report on the budgetary and economic outlook said surprising weakness in the first half of the year will significantly reduce that more optimistic estimate.”

“If CBO’s prediction holds, it will mark another disappointing year in a recovery that many say has been among the weakest on record. The U.S. economy grew just 1.9 percent in 2013, and has yet to exceed 2.5 percent since the recession in 2009.” (“CBO slashes GDP expectations in half for 2014,” The Blaze, 8/27/14.)

Hackers Attack Major U.S. Financial Institutions

Bloomberg News reported that suspected Russian hackers launched a coordinated attack against at least four of the largest U.S. financial institutions, including JP Morgan Chase, stealing gigabytes of sensitive information. “The attack led to the theft of customer data that could be used to drain accounts, according to another person briefed by U.S. law enforcement.” (“JPMorgan, Four Other Banks Hit by Hackers: U.S. Official,” Bloomberg, 8/27/14.)

Given the sophistication of the attacks, authorities suspect Russia of initiating the attack. “U.S. and European sanctions have altered the way that Western banks interact with Russian entities over the past few months, triggering the ire of Russian officials. In April, JPMorgan was singled out for criticism when it blocked a payment from a Russian embassy to the affiliate of a U.S.-sanctioned bank...Russia has used such attacks before. In conflicts with Estonia and Georgia, hackers crashed those countries’ communications systems and government websites.” (“FBI Examining Whether Russia Is Tied to JPMorgan Hacking,” Bloomberg, 8/28/14.)

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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. Listen to the show below:

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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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