Slowing World Economy Bullish For Gold –

Release Date: 
Thursday, June 9, 2016

Gold and Silver Prices
Gold prices rose this week as investors continued to acquire this safe haven asset among global and U.S. economic uncertainty.

“Often perceived as an insurance against risk, gold has risen nearly 2 percent this week after weaker than expected U.S. payrolls data dented expectations of an imminent rise in U.S. interest rates, though that view was tempered by Thursday's surprise drop in weekly U.S. jobless claims. Prices are likely to be bolstered in the next two weeks by nervousness over Britain's June 23 referendum on its EU membership, analysts said. ‘The market is no longer worried that the Fed will raise rates next week and investors are more concerned about the UK referendum, which is likely to help increase demand for gold,’ Danske Bank senior analyst Jens Pedersen said….” (“Gold near three-week high, set for second weekly rise,” Reuters, 6/10/16.)

Gold ended the week up $29.80, closing at $1,274.30. Silver prices closed at $17.38, up $0.89.

Slowing World Economy Bullish For Gold –
The financial website explained the global slowdown in the world economies ultimately may be positive for gold.

“Global economic growth stumbled in May. What does it imply for the gold market?...  The weak expansion resulted from the stagnation in manufacturing production and the slowest activity in the service sector in three months. Broken down by region, emerging markets once again led the slowdown, as they contracted slightly, while developed economies slowed to the second-lowest in just over three years.
Importantly, the U.S. economy was not immune to sluggish growth…

“Summing up, the global economy is slowing down. The U.S. economy is no exception here. The weakness in the service sector casts doubts on the economic rebound in the second quarter. It goes without saying that sluggish economic growth in the world and in the U.S. economy is music to gold bulls’ ears, as the shiny metal usually shines in such an environment.” (“What Does The Current State Of Global Growth Imply For Gold?”, 6/8/16.)

Gold Consolidation is “Very Bullish” – Aaron
Christopher Aaron, a former CIA counter-terrorism officer and current currency and commodity analyst, sees gold’s recent consolidation as a sign of a healthy bull market.

“The grinding nature of gold's price action, since the surge in February, has left many investors concerned. Why hasn't the metal continued to build upon the gains of earlier this year? Nothing in nature moves in a straight line. Gold, a fundamental element of nature, and the markets, being the sum of human nature, are no different.

“Consolidations are very healthy for markets. They represent a shifting of ownership from weak hands to strong. We view any price action above the bottom end of our green highlighted zone at $1,176 to be an ideal setup for a strong continuation move later this year.

“The reason? If gold can consolidate during this - the seasonally weakest period of the year - it will mean new demand is showing up in the market even during the months that we typically expect to see buyers largely absent…

“When the seasonal strength begins to emerge for gold in August and September, we expect the price will begin to advance more rapidly and to finally exceed the elusive $1,305 figure. As investors considering the precious metals now during the summer slow season, this is not the time to get complacent. This is the time to make wise preparations for the second chapter of the bull market that began last year.” (“Gold Price Consolidation Points To A Strong Fall Ahead,” Gold-Eagle, 6/8/16.)

In World of “Radical Uncertainty” Investors Should Turn to Gold – King
The World Gold Council interviewed the former Governor of the Bank of England, Mervyn King, about his grave concerns over current central bank policies and the world economy.

“Ever since the financial crisis erupted in 2008, governments, policymakers and
regulators have been determined to prevent a recurrence of those dark times… Mervyn King believes many of these strategies are, quite simply, wrong. ‘Monetary policy has reached its limits,’ he says. 'If you repeatedly bring down interest rates to try and persuade people to spend today rather than tomorrow, it works for a while. But they become increasingly resistant to being asked to spend their resources now rather than save for the future. And the longer domestic spending is in excess of potential output, the more you have to borrow from the rest of the world to finance it. Eventually people wake up to the fact that this is unsustainable and then you
get a sharp adjustment downwards…’

“In a world characterised by what King describes as ‘radical uncertainty’, he believes long-term asset managers should adopt a pragmatic approach to investment. ‘If we don’t quite know what the future holds, there is little point in getting carried away by very fancy mathematical calculations of optimal portfolios. Don’t rely on past data to be a good guide. Try to think through what mix of assets gives you the best chance of surviving some big event. That must mean including assets that are negatively correlated or uncorrelated in your portfolio,’ he says. ‘And I am very struck by the fact that over many many years, central banks, governments and individuals have always, despite the protestations of economists, held some gold in their portfolio. Obviously, there is no high running return, but when unexpected things happen, particularly when governments rise and fall, then gold is a means of payment that everyone is always prepared to accept. And I think that’s why even central banks have always had a role in their portfolios for gold,’ he adds….” (“Misguided policies and economic risk,” WGC Gold Investor Vol. 1 June 2016.)

Gold Has Positive Long Term Future – Seeking Alpha
A Seeking Alpha commentator and hedge fund manager identified the factors which signal a new and “very long” bull run for gold.

Strong first quarter in 2016 with price appreciation of approximately 25% demarcated beginning of new long term uptrend. Long term uptrend in price to be driven by gold's role as secure haven amidst global economic uncertainty. Central banks and investment banks purchasing large quantities of gold bullion. Leading hedge funds endorse gold as core investment...

 “Investment banks are purchasing large amounts of gold bullion for their own accounts…  quantifying their belief in the order of magnitude of its coming price appreciation. Strengthening this view gold for the first time has a positive carry in many parts of the world as bankers experiment with negative interest rates. JP Morgan Chase & Co. is recommending that its clients position for a new and very long bull market in gold…

“Leading hedge funds the Duquesne Family Office, Green Light Capital and Elliott Management have publicly taken a stand in the gold camp…  In tacit recognition of the flip side of their easing policies central banks have since 2010 been net buyers of gold, and their demand has expanded rapidly…

“Drivers of price appreciation will be gold's role as the historically established commodity of secure value while world economies transition into doubt and uncertainty, speculation in a strongly rising market, industrial applications without substitute, and consumer demand.” (“The Future Of Gold: A Long-Term Direction Upward,” Seeking Alpha, 6/7/15.)

Major Money Returning to Gold
The website reported that billionaires and central banks are returning to gold as a safe haven asset.

“It wasn’t so long ago that some of the more famous investor gurus were shrugging off gold as nothing more than shiny trinkets with no investment value. They were wrong. This safe haven is back, the recovery is clear, and there have been some very big changes of heart…

“A ton of money is moving around here. And thanks to an overvalued U.S. dollar, gold may have nowhere to go but up. Gold has no upper limit on its price, and according to Harvard economist Kenneth Rogoff, speaking to the Financial Times recently, emerging economies might do well to shift all their U.S. dollar reserves to gold. Gold, he says, could be viewed as ‘an extremely low-risk asset’ with average real returns comparable to very short-term debt…

“Billionaires have certainly taken notice. They are dumping massive amounts of money into gold right now and seeing huge returns. They are now ahead of a game that has seen prices rise almost 14 percent this year—even with the recent correction…

“In response to particularly weak U.S. job growth rate in May, the price of gold jumped by nearly 3 percent last week, and it’s still maintaining this bullish attitude.

Bullion may have suffered a price dip earlier in May, but the per-ounce rate remains almost 15 percent stronger than the beginning of the year. The first few days of June have also seen gold prices spike upward, signaling a swift recovery from mellow May and a continuation of 2016’s legacy as a golden year for the namesake commodity….” (“Billionaire Investors Back A Gold Price Rally In 2016,”, 6/8/16.)

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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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