Rosenberg: Gold an “Inflation Hedge”

Release Date: 
Friday, May 2, 2014

Gold and Silver Prices

Gold prices moved lower this week on positive U.S. economic data. A mild rally on Friday helped regain some ground due to escalating tensions between Russia and Ukraine. “Ukraine launched a military operation Friday to regain control of Slovyansk, meeting stiff resistance from pro-Russia militants who shot down at least one helicopter. Some investors perceive gold as haven from uncertainty because its value isn't linked to a government or country…” (“Gold Turns Higher as Ukraine Worries Eclipse Jobs Data,” Wall Street Journal, 5/2/14.)

Gold finished the week at $1,301.60, down $3.20. Silver prices closed down $0.27, at $19.56.

Rosenberg: Gold an “Inflation Hedge”

David Rosenberg, chief economist with Gluskin Sheff and Associates, advised investors to include gold in their portfolio as an inflation hedge.

“It is appropriate to have some gold in your portfolio as inflation is expecting to push higher in the near-future, said the chief economist and strategist at one of Canada’s pre-eminent wealth management firms…Dave Rosenberg, from Gluskin Sheff and Associates, said that he is expecting inflation to rise as central banks around the world are no longer pursuing policies of price stability. Instead, central banks like the Federal Reserve are comfortable letting inflation rise to support an economy that is still in recovery mode.

“‘Gold…as an inflation hedge does well during periods when policy rates are being held in negative territory in real terms, which (Federal Reserve chair) Janet Yellen seems to be foreshadowing,’ he said. ‘You want to be careful about how much gold exposure you want to have, but you certainly want to have some as a buffer.’”

“Rosenberg explained that although the CPI data currently shows that inflation is not a concern, it is a backwards looking indictor. Higher commodity costs, a trend of higher hourly wages, rising rental costs and an increase in health care costs are all pointing to higher inflation down the road, he said.” (“Good To Hold Some Gold With Real Negative Interest Rates - Rosenberg,” Kitco News, 4/29/14.)

Embry: Upside for Gold “Going to Be Huge”

John Embry, Chief Investment Strategist with Sprott Asset Management, believes China’s continued gold buying spree will move prices higher. “‘I can assure you that the Eastern interests are rubbing their hands and piling into all the physical gold they can get. Once they realize that there is a limited amount remaining for them to pour their U.S. dollars into, I believe the price will move up sharply. I think that people should be focusing more on the eventual upside—which is going to be huge….I think that the Chinese have changed the whole ball game. You could measure how much gold was being imported into China through Hong Kong and they were importing staggering quantities. They were essentially buying up the equivalent of the world’s entire annual mine production outside of China. Now, they are going to start taking gold in more clandestinely through Beijing and we won’t know how much they are buying, but I think they will buy as much as they can get their hands on.’” (“John Embry: Hold onto Gold as ‘Currency Event’ Likely,” Sprott’s Thoughts, 5/1/14.)

Gold Supply Issues May Drive Prices Higher

Financial writer Ben Kramer-Miller, wrote a recent commentary citing reasons he believes the mining industry could be a price catalyst for gold.

“Gold has been in a very long bull market for the duration of the 21st century. While many claim that it has ended this simply isn’t the case. Gold remains extraordinarily undervalued if we look at many historical metrics…[W]e are finding more and more that foreigners are less willing to hold dollars and are increasingly swapping these dollars and dollar-denominated assets for gold.”

“We find that there are other forces supporting higher gold prices as well. Mining companies are having a very difficult time producing gold profitably at $1,300/ounce. While most large gold producers are announcing that they can produce the yellow metal at $1,000 – $1,100/ounce, when all is said and done most of these companies have razor thin margins with the gold price where it is. Many companies were forced to reduce their gold reserve estimates, meaning that they now have less in-ground gold that they can mine profitably.”

“If the gold price remains low, [m]ore mines will be shut down, and this will reduce global supply. With supply declining and demand rising, the price must rise, and now that we are consolidating the gains from the beginning part of the year I suspect that some of the larger buyers that I mentioned above will begin to push prices higher.” (“Is Gold About To Move Higher?” Wall Street Cheat Sheet, 4/30/14.)

Goldline’s Express IRA℠ Program

Many Goldline clients choose to include precious metals as part of their retirement planning especially during times of economic crisis and uncertainty.* Goldline’s Express IRA℠ allows clients to acquire precious metals on their schedule; they no longer have to wait for your self-directed IRA to be funded before getting started.

Goldline's Express IRA℠ not only provides clients with the ability to diversify their IRA on an expedited basis, clients can also qualify for Goldline's ground-breaking Two-Way Price Guarantee Program℠ when they acquire $10,000 or more of our exclusive bullion coins. When an Express IRA purchase qualifies for Goldline's Two-Way Price Guarantee Program℠, clients are protected on short-term upside and downside market movement: they can either call to reprice their coins if the selling price falls (up to a maximum of 28 days depending on the size of the purchase) or, if the selling price of the coins increase during the qualifying period, clients can call Goldline to acquire additional coins at the original selling price.

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:

*Federal IRA tax laws are complex and may change from year to year. Goldline believes it is appropriate to have 5%-20% of retirement portfolio allocated to precious metals. Other individuals and institutions may recommend different percentages. As with any investment, you should consult your tax advisor before making a decision regarding precious metals IRA investments.

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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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