Recession Coming Within 12 Months; Investors Need Gold – Pal

Release Date: 
Friday, October 14, 2016

Gold prices fell on Friday to end the week in negative territory as a stronger dollar and the prospect of a Fed rate increase weighed against the yellow metal.

“Gold futures moved lower Friday… as the dollar climbed ahead of U.S. consumer data and an afternoon speech from Federal Reserve chief Janet Yellen. The metal slogged through its last five trading sessions after last week’s tumble marked the biggest price drop in more than three years. So far, little has emerged this week to sway market expectations for slow, data-driven interest-rate increases by the Fed.” (“Gold lower, clinging to weekly gain ahead of consumer data, Yellen speech,” MarketWatch, 10/14/16.)

Gold ended the week down $7.10, closing at $1,251.50. Silver prices closed at $17.48, down $0.15.

Recession Coming Within 12 Months; Investors Need Gold – Pal
A former Goldman Sachs banker and founder of the macro investment advisory group Global Macro Investor told MarketWatch the U.S. will be hit by a recession in the next 12 months. As such, investors need to “park their cash” in gold.

“Mirror, mirror on the wall, which asset is most mispriced of all? According to a Goldman Sachs alum who predicted the financial crisis in 2008, it’s gold. The precious metal should be a lot more expensive when the likelihood of a global financial collapse and a move toward negative interest rates is accounted for, says Global Macro Investor founder Raoul Pal, who now sees a U.S. recession within 12 months…

“’As we get to negative interest rates, gold is a good place to park your cash,” said Pal, who discussed his outlook with MarketWatch in a September interview and a follow-up conversation over email. ‘I’m not a gold bug,’ the former GLG Global Macro Fund co-manager — who is also watching the dollar closely — “’but this is the currency I would choose now… All the really serious thinkers are interested in gold,’ he said…

“Pal’s core presumption — one he’s held since 2014 — is bad news for the U. S: He is convinced the country is headed for recession within a year. ‘The business cycle points to that,” he said, “and 100% of all two-term elections have had a recession within 12 months since 1910.’

“His view contrasts with the Federal Reserve’s own indicator, based on corporate-bond spreads, that predicts just a 12% chance of a pullback in the next year. But Pal does have some prominent company: Savita Subramanian, Bank of America’s head of equity strategy, recently predicted the same; Janus Capital’s Bill Gross spoke of a lagging U.S. recovery in his September investment note; and bond investor Jeffrey Gundlach showed a chart during a recent webcast that revealed the start of a recession.

Should his prediction come true, Pal says, gold prices could double. If central banks want to get active and combat a slowing economy, he says, they will try to stimulate the economy via printing money or more easing, all of which plays ‘into the hands of gold….’” (“A recession is coming — so hide in gold, says influential investor Raoul Pal,” MarketWatch, 10/14/16.)

Gold Above $1400, Silver At $19 In 2017- Credit Suisse
International banking giant Credit Suisse has forecast gold to rise to $1400 next year and later test $1500.The Swiss bank also reaffirmed its 2017 silver forecast of $19 per ounce.

“Credit Suisse says the recent consolidation in gold 'provides a more attractive entry point' and looks for the metal to climb back above $1,400 an ounce in 2017. Analysts say they look for the metal to hold $1,200 after a sell-off in recent weeks driven by expectations of a Federal Reserve rate hike, stronger U.S. dollar and reduced chance of a Donald Trump presidency in the U.S…

“Credit Suisse says its bullish gold outlook remains intact due to longer-term interest-rate expectations, uncertainty, wealth preservation, central-bank buying and mine supply. They look for $1,325 gold in the fourth quarter and $1,450 in the first quarter of next year, with the market testing the $1,500 level sometime in 2017. Credit Suisse’s full-year 2017 projection is $1,438.

“’While gold has pulled back recently to ~$1,250, we see the metal supported at $1,210 if the market prices in a 100% probability of a Fed rate hike in December and would note that our fixed-income team continues to forecast no hikes until May 2017,” Credit Suisse says. “We believe gold will see a rally once the Dec. 14th FOMC meeting passes, or if global developments reduce the likelihood of another rate hike…’

Analysts say mine supply will be “challenged” even with $1,300-an-ounce gold, pointing out that reserve lives have fallen from 14 years as of 2011 to 10 years at the end of 2015, which is expected to be the peak production year… Credit Suisse forecast $18-an-ounce silver in the fourth quarter and $19.20 in the first quarter of next year. The bank left its 2017 full-year forecast unchanged at $19.” (“Credit Suisse Sees Gold Back Above $1,400 In 2017,” Kitco News, 10/14/16.)

Inflation Momentum Positive For Gold - Stoeferle
Ronald Stoeferle, managing partner the wealth management firm Incrementum AG, believes the rise of inflation will be strongly supportive of gold prices.

“Rising inflation and sagging confidence in the ability of central banks to revive global growth will drive up gold, according to Incrementum AG, which says bullion could climb to a record in the next two years. Consumer prices are set to rise as oil rebounds, while low or negative interest rates and bond buying by central banks have failed to boost economies, said Ronald Stoeferle, managing partner at the Liechtenstein-based company, which oversees 100 million Swiss francs ($101 million). Incrementum was the top precious metals forecaster last quarter, Bloomberg-compiled data show.

“’Inflation may surprise to the upside and this will be the moment when you want to have some gold in your portfolio,’ Stoeferle, 35, said in an interview. ‘Not the absolute level of inflation, but the momentum and the direction of inflation is the most important driver. In this uncharted territory, with big monetary experiments going on, it just makes sense’ to hold bullion, he said… “Not everyone is as positive. The slump in gold could be the start of a bigger sell-off, according to Deutsche Bank AG Chief Global Strategist Binky Chadha this month, who believes that bullion is 20 to 25 percent overvalued…

“Stoeferle’s comments echo Elliott Management Corp.’s Paul Singer who in September said there’s a risk inflation could surprise everyone and that gold was underrepresented in portfolios. David Einhorn and Stan Druckenmiller have also given reasons for owning gold...

“Gold’s 3.3 percent drop on Tuesday last week was enough to turn some traders bearish, signaling that overall sentiment was far from positive, said Stoeferle, who publishes an annual report called ‘In Gold We Trust’. ‘From a sentiment perspective, it’s probably the most-hated bull market these days. This is only the beginning of this party.’” (“ Here's What Could Drive Gold to a Record in Next Two Years: Top Forecaster,” Bloomberg, 10/11/16.)

Supply, Global Risk Support Gold - Mineweb
In a webcast this week several experts explained that increased demand and a move to safe have assets are positive for gold prices.

“Analysts and fund managers agreed on the positive outlook for gold at a webcast hosted by the Mining Indaba on Wednesday. John Mulligan from the World Gold Council says investors can have confidence in gold over the medium term, despite analysts discounting a rise in interest rates. “But you have to take into account the strength of the fundamental markets in India and China. Then there is the bar and coin market in the west – Europe and US – which have grown impressively over the last few years.

“Mulligan also pointed out that despite China’s impressive growth for gold, it is still a very young market, and one that is very integrated. So there is plenty of room to grow. Mulligan says India is a very fragmented market but there is deep cultural affinity for gold. “And the current Modi government has come to recognise that. So there is opportunity in the fact that the market is trying to modernise.”

The intangible factors that will support the gold price is that of sentiment. Mulligan believes the world has entered a new period of global risk… Hanre’ Rossouw from Investec Asset Management agrees with the positive outlook for gold. “We think supply side factors will be more important in future cycles than the last one, just because Chinese demand overwhelmed everything in the last one….’” (“The tangible and intangible factors will support the gold price,” Mineweb, 10/13/16.)

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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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