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Gold prices tumbled on Friday following a stronger than expected jobs report which increased chances the Federal Reserve will raise interest rates.
“Gold prices extended losses on Friday after a better-than-expected jobs report dented safe-haven demand and increased concerns that the Federal Reserve could raise interest rates in the coming months… The U.S. economy added 255,000 jobs in July, beating economists’ expectations of 179,000 and signaling that the labor market is on strong footing. Positive economic data also bolsters the case for the Fed to raise interest rates as early as September…
“However, many traders say that the longer-term catalysts for gold to move higher are still in play. ‘We still have to deal with the fact that while we look good, those around us don’t,’ said Ira Epstein, market strategist at the Linn Group, referring to the strength of the U.S. economy relative to the rest of the world….” (“Gold Prices Fall on Strong Jobs Data,” WSJ, 8/5/16.)
Gold ended the week down $15.00, closing at $1,336.40. Silver prices closed at $19.76, down $1.63.
Silver and Gold Poised for New Record Highs – Market Anthropology
The Market Anthropology blog wrote that a breakdown in the U.S. dollar could send gold and silver prices past their 2011 record highs.
“For those patient and willing (there weren’t many), gold investors have done quite well this year, despite consensus expectations at the end of 2015 that a round trip drop beneath $1000 an ounce was inevitable. Yet even with a gain of nearly 30% this year, we suspect the current rally in gold will eventually break its cycle high (more than 40% away) of $1924 an ounce, achieved in September 2011. For silver bulls, the gains have been even more exceptional, tacking on more than 49% from last year’s close. With a cycle high of nearly $50 an ounce in the spring of 2011, the prospects for silver are proportionally much larger – albeit with greater volatility and risks…
“The bottom line is despite healthy gains in precious metals this year, we believe significant returns lie ahead as a weaker US dollar and declining real yields target their respective lows from 2011… Considering that gold already trades close to $1400 an ounce while the dollar remains historically stretched, the prospects for precious metals continue to appear attractive to us as the markets catalytic converter for lower real yields has much further room to fall. Moreover, from a historic cyclical perspective, the broad top potential in the dollar now aligns structurally with the explosive and final retracement declines in real yields around 1978 and 1946, respectively. Should history repeat, we would expect new highs for both gold and silver as real yields plum the cycle low.” (“Connecting the Dots - 8/3/16,” Market Anthropology, 8/3/16.)
Big Investors Turning to Gold
CNBC reported that a number of significant investors are adding gold to their portfolios as a hedge to a turbulent, and potentially failing, financial market.
“It's not just Olympians who will be going for the gold this month. Bill Gross is bullish on gold, and he's got plenty of company in 2016. In a turbulent market, or worse still, a sputtering financial system, the precious metal becomes that much more precious in a market offering less and less in the way of yield. Gross voiced concerns about the financial system, economy and persistently low interest rates when he talked up gold in his August letter to investors…
“Gross joins a big and growing cadre of investors looking to mine yield in gold at a time when positive returns are becoming increasingly scarce… And gold has increasingly become favorable to investors in 2016. Amid a turbulent market, some of Wall Street's top stock pickers have picked the precious metal to net returns, and gold has delivered by outpacing market benchmarks at a time when disappointing economic reports are persuading U.S. central bankers to hold off on rate hikes, pressuring yield.
“Not everyone is buying Gross' dire predictions. But more investors are buying gold… Dennis Gartman wrote last month that he doesn't think Western culture is ‘doomed to fail’ or that a recession is even necessarily on the way — but he is, and has been, a gold investor for some time. And some analysts say that despite gold's rally, more appreciation is on the way.
“Juerg Kiener, Swiss Asia Capital's Singapore managing director and chief investment officer, predicted gold will soar past its all-time high set in 2011 of $1,900 per ounce.
Bank of America analysts last month lifted their target on gold to $1,475 after seeing investors pile into the precious metal on turbulence generated by the U.K. Brexit vote, along with other market factors. ‘The world has been walking from crisis to crisis and we see risks that this may not change,’ they wrote.” (“Investing in gold: Big players put money into the precious metal,” CNBC, 8/3/16.)
“Perfect Storm” Sending Investors to Gold – WGC
The World Gold Council reported that a "perfect storm" has caused investors to add gold to their portfolios for risk protection against other assets.
“Gold is poised to benefit from a ‘perfect storm’ of fewer viable investment alternatives and bigger risks, according to an industry group that is the sponsor of one of the world’s biggest gold exchange-traded-funds. Analysts have interpreted weak Japanese government bond demand—such as that seen for a 10-year auction earlier this week—as a sign that investors are losing faith in “unconventional monetary policies,” said the World Gold Council in its August monthly report. ‘In this environment, we believe investors are using gold to hedge portfolio risk as they add more stocks and low quality bonds to their asset mix,’ said the World Gold Council…
“Central banks are increasingly throwing all they can at global economies to stimulate growth, said The World Gold Council, which pointed to indications by the European Central Bank that it will expand stimulus. On Thursday the Bank of England cut rates and expanded its asset-buying program….” (Why a brewing global economic storm is turning gold into the perfect trade,” MarketWatch, 8/5/16.)
Silver-Gold Ratio Indicates Bull Market – ABN AMRO
ABN AMRO’s Georgette Boele, the 2015 top precious metals forecaster with a 96.27% accuracy across the year, believes the current silver to gold ratio indicates the metals are in a bull market.
“An ounce of gold buys the least amount of silver since 2014, which may signal to some investors that precious metals are set for further gains. In a bull market for precious metals, silver usually outperforms gold, and the reverse tends to be the case in a bear market… Silver may continue to outperform its sister metal into 2017, according to Georgette Boele, a currency and commodity analyst at ABN Amro Bank NV.” (“Silver Trouncing Gold Signals Bull Market May Continue: Chart,” Bloomberg, 8//16.)