President-Elect Trump Consults With Former Banker Who Wants Return To Gold Standard

Release Date: 
Friday, December 2, 2016

Gold prices rose on Friday but remained down for the week.

“Gold edged higher on Friday, shrugging off data showing rising U.S. job numbers, with analysts saying that an expected rise in interest rates had already been priced in… ‘The data was a non-event for gold. The market is still thinking a December hike is very likely, which has already factored in, and that's why gold is not really moving today,’ said Natixis' precious metals analyst, Bernard Dahdah…

“Capital Economics commodities economist Simona Gambarini said that U.S. president-elect Donald Trump is uppermost in investors' minds. ‘Most investors are now looking at 2017 to see what's going to happen with Trump, what policies he will implement and the inflationary impact of those policies,’ Gambarini said….” (“Gold rises despite U.S. jobs data but remains set for weekly loss,” Reuters, 12/2/16.)

Gold ended the week down $5.50, closing at $1,178.10. Silver prices closed at $16.82, up $0.33.

President-Elect Trump Consults With Former Banker Who Wants Return To Gold Standard
President-elect Trump recently met with a former banker and president of the prestigious Cato Institute, John Allison. Mr. Allison has forcefully argued the United States should close the Federal Reserve and return to a gold standard.

“On Monday, Trump will meet with John Allison, the former CEO of the bank BB&T and of the libertarian think tank the Cato Institute. There have been reports that Allison is being considered for Treasury secretary. Trump's has on the campaign trail questioned the future of the Federal Reserve's political independence, but Allison takes that rhetoric a step further. While running the the Cato Institute, Allison wrote a paper in support of abolishing the Fed.

“’I would get rid of the Federal Reserve because the volatility in the economy is primarily caused by the Fed,’ Allison wrote in 2014 for the Cato Journal, a publication of the institute… ‘"When the Fed is radically changing the money supply, distorting interest rates, and over-regulating the financial sector, it makes rational economic calculation difficult … Markets do form bubbles, but the Fed makes them worse…’

“Allison also suggested that the government's practice of insuring bank deposits up to $250,000 should be abolished and the US should go back to a banking system backed by "a market standard such as gold….’” (“Trump is meeting with an ex-bank CEO who wants to abolish the Federal Reserve and return to the gold standard,” Business Insider, 11/28/16.)

Gold Prices Doubled As Indians Line Up To Exchange Bags Of Cash
India’s ban on large denomination bills continued to wreak havoc on its economy, leading to many Indians paying high prices to exchange cash for gold.

“From keeping Indian defense jets on the ready to transfer cash from mints, to banks knocking on the doors of religious institutions to access smaller change, Indian ingenuity is being stretched by Prime Minister Narendra Modi’s cash ban to crackdown on unaccounted money.

“India’s cash economy has been thrown into turmoil since Modi announced last week that 500 and 1,000 rupee notes would cease to be legal tender and would have to be deposited at banks by year-end, leaving about one-seventh of currency in circulation. Economists say the move will be beneficial in the long-run as it is targeted at weeding out tax evasion and corruption…

“A new gold rush also emerged soon after Modi’s announcement. ‘Jewelers who had shut shop for the day on Nov. 8 had to reopen their stores within a couple of hours and were selling gold up to 4 a.m.,’ Chirag Thakkar, a director at gold wholesaler Amrapali Group, said by phone from Ahmedabad in Modi’s home state of Gujarat. ‘Customers were lining up with bags of cash. Some jewelers even had to call the police to organize the crowds.” Customers paid as much as 52,000 rupees per 10 grams, almost double the current prices, he said....’” (“The Strange Consequences of India’s Unprecedented Banknote Ban,” Bloomberg, 11/29/16.)

Gold And Silver Necessary To Protect Against Coming Crisis – Rickards
Author and financial analyst James Rickard believes investors need gold and silver coins as protection against the coming economic crisis.

“Gold and silver coins will protect from the coming financial crash - James Rickards, author of The Road to Ruin told Sean O'Rourke in a must listen to RTE Radio interview this week. Rickards is the best selling author on finance and money and advises the US intelligence community on international economics and financial threats. His advice to people with savings or investments to protect from the coming crash? Buy gold and silver coins.

"For savers and investors at any level, modest or wealthier - put 10% of your invest-able assets in physical gold or silver, for smaller amounts, silver might do very well. It’s the future of money… Here is why . First of all it is non-digital. Everyone thinks they have money; what they have are electrons in banks...If you have physical gold you are outside of the digital system - that money cannot be frozen by the government. It cannot be hacked by Vladimir Putin...’

“Financial Crashes are like earthquakes: we know that they are coming, but we know not the day or the hour. The next one is close and is likely to be severe, even epochal… In 1998, Wall Street bailed out the hedge funds. In 2008, the central banks bailed out Wall Street. In 2018 – if not sooner – who’s going to bail out the central banks?’ …

“Rickards predicted that Donald Trump would be president and he says that Trump is using the Ronald Reagan playbook to try to boost the US economy, but it won’t work because the world is too different today from the way it was in the 1980s. ‘Reagan had a lot of tailwinds: inflation had to come down, interest rates had to come down. He had fiscal space to run up the debt. Trump has headwinds….’” (“Gold and Silver Will Protect From Coming Financial Crash – Rickards,” Zero Hedge, 12/2/16.)

Gold Attractive At Current Prices; All Metals Up Next Year – UBS
UBS analysts told investors that the current consolidation in gold prices offers an attractive opportunity to acquire gold. The bank also sees higher prices for silver and platinum.

“Swiss bank UBS looks for gold to average $1,350 an ounce in 2017, characterizing the metal as ‘down but not out’ after significant price declines over the last few weeks.Silver, platinum and palladium are also seen rising next year from current levels. Strategist Joni Teves said in a report Thursday that the bank’s higher gold-price expectation has been tapered to reflect moves across a range of markets after U.S. elections, with expectations that fiscal stimulus will boost economic growth and yields. In the near term, gold looks ‘fragile’ and is likely to remain under pressure ahead of the Dec. 14 meeting of the Federal Open Market Committee, UBS said. 

“However, given that the market has already moved and positions have been adjusted, we think any further downside from here is likely to be relatively more contained,” UBS said. “We think gold is now looking attractive around these levels and would buy into further weakness, gradually building a long-term gold position. A few weeks ago, we set our three-month forecast for gold at $1,300; while the recent pressure on the market makes this target look ambitious, we continue to expect gold to make its way back towards this level in the months ahead as the rationale for holding gold from a strategic standpoint remains intact, in our view…

“’A scenario where nominal yields run up yet inflation/inflation expectations also pick up such that real rates remain relatively flat or even compress would remain supportive for gold, especially against the backdrop of lingering macro uncertainty…A compression in real yields amid easy monetary policy or risk-off scenario would also be positive for gold.’

“Still, the bank acknowledges that the downside risk to its base-case scenario has increased. Any downside in gold could accelerate if real yields rise on a sustained basis. Meanwhile, UBS looks for silver to average $18.60 next year. ‘[W]e think silver's links to economic activity via its industrial-demand component should help its relative performance to gold during periods when markets are optimistic about growth and risk.’ Platinum and palladium are seen averaging $1,060 and $755 next year….” (“UBS: Gold Seen Averaging $1,350 In 2017; 'Down But Not Out',” Kitco, 12/1/16.)

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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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