Rickards: Gold to $7,000—$9,000

Release Date: 
Friday, March 28, 2014

Gold and Silver Prices

Gold and silver prices fell this week after the release of positive U.S. economic data. “Gold futures lost their hold on the $1,300-an-ounce mark…as the dollar edged higher in the wake of better-than-expected economic data, prompting the metal to lose some of its investment appeal…‘Gold’s fall below the 200-day moving average at $1,299 triggered stop losses, which resulted in a [session] low of $1,292,’ said Chintan Karnani, chief market analyst at Insignia Consultants in New Delhi. U.S. data releases suggest firm growth, with weekly jobless claims falling to a four-month low and the economy’s growth in the final three months of 2013 bumped up to a 2.6% annual pace from 2.4%. Upbeat economic data tends to dull gold’s safe-haven appeal.” (“Gold loses grip on $1,300 as dollar bounces,” Market Watch, 3/27/14.)

Gold closed the week at $1,295.90, down $39.80. Silver prices closed down $0.46, finishing the week at $19.92.

Rickards: Gold to $7,000—$9,000

Noted financial author and portfolio manager with West Shore Funds, Jim Rickards discussed his reasons for being bullish on gold.

“‘One of the reasons gold did so poorly in 2013 was because 500 tons were taken from [the gold ETF] GLD warehouse by authorized dealers and dumped on the market.’ Rickards says most of that gold went to China, but China is storing it so it is ‘not going to see the light of day for 300 years.’ As a result, Rickards says, the floating supply of gold declined, and less supply and more demand created a ‘good technical setup’ for higher prices. Longer-term Rickards is forecasting gold prices at $7,000 to $9,000 an ounce in the next three to five years…[H]e still advises investors to allocate 10% of their portfolio to gold as ‘insurance’ against catastrophe.” (“Don't write off gold just yet: Jim Rickards,” Yahoo Finance, 3/24/14.)

China Acquires Gold to Buy Global Economic Influence

Wall Street Cheat Sheet business writer Ben Kramer-Miller wrote this week that China’s gold holdings reflect the country’s desire to support its currency and to influence global economic policy.

“One of the most fascinating developments in the gold market since the turn of the century is China’s burgeoning role as a leader in the sector. The Chinese have been buying gold and the Chinese have been producing gold in record numbers now, whereas 15 years ago, they played a much smaller role in the global gold market.”

“While there is nothing official there is a lot of very convincing circumstantial evidence that the PBoC (People’s Bank of China) has substantially more gold than its official statements indicate. This means that it has been accumulating gold at a fairly rapid pace. This is very significant for the future price of gold and China’s role on the geopolitical stage. The PBoC isn’t buying gold as a trade. That is, it isn’t buying gold at $1,300 to sell it a couple of years later at $1,700. The PBoC is buying gold for the long run. While it doesn’t have official reasons for wanting to hold so much gold, the reasons are fairly intuitive and straightforward.”

“If the PBoC holds gold then there will be more global confidence in the Chinese renminbi (yuan). Despite the recent correction in the exchange rate between the renminbi and the dollar, the fact remains that the Chinese are expanding the role of the renminbi in global trade, and they are doing so to gain economic and political influence. By holding gold, the PBoC instills confidence in the renminbi so that China’s global trading partners will be more willing to accept it and so that global investors will be more confident in holding renminbi-denominated assets. Thus, by accumulating gold the Chinese are increasing their influence and power on the global economic and political stages. Not only should gold traders take notice given the impact that the PBoC has on the supply and demand of gold, but those with political interests need to realize that by buying gold the PBoC is buying geopolitical influence.”

“Ultimately investors should be confident that the PBoC will more likely than not put a floor underneath the gold market. This is extremely bullish. Furthermore, there is a distinct possibility that the Chinese will update their gold holdings, and when they do, they will make what I have just said about China’s growing economic and political role a reality.” (“How Much Gold Does the People’s Bank of China Have?” Wall Street Cheat Sheet, 3/21/14.)

Technician: Gold at Bottom; Ready to Move 15%

Analyst Carter Worth told CNBC why he thinks gold has formed a “double bottom” and is poised to rise.

“Sterne Agee chief market technician Carter Worth predicts that gold will rise about 15 percent from current levels…‘When you're cascading, you make a low and then you violate it. And make a low, and then violate it. Make a low, and then violate it. Low after low,’ Worth said Friday on CNBC's “Options Action.” ‘But then, we have this massive low in June, as everyone knows, and again, we have a rally. But this time, we don't violate. So we have a well-defined double bottom.’ For Worth, the fact that gold…found support at the prior low around $1,180 is a clear indication that the selling is over.”

“‘It's a major break above the downtrend line,’ Worth said. That shows ‘the import of the strength that began this year.’ Finally, Worth points out that gold's 150-day moving average has stopped declining, and has gone flat. That transition in the moving average ‘is the definition of what I would characterize as a bearish-to-bullish reversal,’ Worth said.”

“To devise a target, Worth then looks to where gold has been. Gold futures peaked around $1,925 in September 2011, and bottomed at about $1,180 in June 2013. Worth expects gold to ‘retrace’ about half of that move, bringing the metal back to $1,500.” (“Why this top technician recommends buying gold now,” CNBC, 3/24/14.)

Russia Moves from Dollars to Gold

Russia continues to diversify its foreign reserves, especially dollars, into gold.

“Russia has increased its gold holdings by 7.247 tonnes to 1,042 tonnes in February…Many analysts are ignoring the important context of today's new geopolitical backdrop. Russia alone has some $400 billion in foreign exchange reserves - mostly in U.S. dollars. If they were to diversify just 5%, worth some $20 billion, of those reserves into gold - it would be equal to nearly 500 tonnes of gold or nearly 25% of global annual production. Russia bought another 7.247 tonnes of gold in February. It will be interesting to see what Russian demand is in March and indeed in the coming months. Sanctions could lead to materially higher demand from the Russian central bank, Bank Rossii.” (“Russia Raises Gold Holdings By 7.247 Tonnes To Over 1,040 Tonnes In February,” Gold Seek, 3/26/14.)

Goldline’s Express IRA℠ Program

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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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