Three Factors That Can Send Gold To $2,000 - Motley Fool

Release Date: 
Friday, May 26, 2017

Gold saw a significant gain on Friday, rising more than $10 per ounce in morning trading, following remarks from President Trump regarding North Korea.

"Gold prices tried for back-to-back gains Friday, pushing to a three-week high, as a fresh round of geopolitical jitters, this time pinned to North Korea, offset generally gold-negative sentiment this week stemming from expectations for higher interest rates… President Donald Trump reportedly said Friday at his bilateral meeting with Japanese Prime Minister Shinzo Abe that the "big problem" of North Korea's ambitions for a nuclear weapon will be dealt with, telling reporters that "you can bet on that," according to Politico and other news outlets…." ("Gold gets a lift from fresh North Korea jitters," MarketWatch, 5/26/17.)

Gold ended the week up $11.10, closing at $1,267.70. Silver prices closed at $17.41,up $0.48.

Three Factors That Can Send Gold To $2,000 - Motley Fool
Motley Fool commentator Scott Levine identified the factors which may send gold to $2,000 per ounce.

"The actions of central banks, weak global growth, and higher inflation could all influence the metal to climb higher, but let's dig into a not-so-far-fetched scenario that could lead it to break new ground… Love him or hate him, it's fair to say that President Trump has caused quite a stir during the first few months of his administration. Though this may bring joy to news junkies who enjoy pundits pontificating on nightly news shows, it also brings concern to the market. And when concern -- read: fear -- grows in the market, investors turn away from stocks and toward gold, sending prices higher…

"Although the prevailing sentiment is that the Fed will raise rates twice more this year, there's reason to believe this may not come to fruition… Low interest rates often lead to higher gold prices, but If the rate hikes don't come to pass, the market may interpret this as a troubling sign -- a harbinger of a downward turn in the American economy. Consequently, gold prices would likely climb on the backs of investors' uncertainty.

"The weakening dollar could be a third factor that causes gold to rocket higher. According to the dollar index, the U.S. dollar has reached its lowest level in the past six months, and if this trend continues, it could inspire investors to flock to the traditional safe-haven investment…

"Uncertainty in Washington, the absence of interest rate hikes, and a fall in the dollar are all factors tied, individually, to the rise in the price of gold. Should these three factors all occur concurrently, however, it could create a scenario which results in market participants racing to increase their positions in gold -- a scenario that could very reasonably result in the metal breaking new ground, reaching $2,000…." ("Here's What It Would Take for Gold to Hit $2,000," Motley Fool, 5/26/17.)

Investors Need Gold As Universally Accepted Store Of Value - WSJ
The Wall Street Journal reported that investors need to include gold in their portfolios as protection against the risks of geopolitical uncertainty.

"Donald Trump's first venture abroad has been notable for its calm, after the tumult he left behind in Washington. For investors worried that the U.S. president could destabilize the global trade and security regime, his willingness so far to stick to the script might have come as a relief. The long-term picture isn't so benign for those who've profited from globalization, as former HSBC chief economist Stephen King sets out in a new book, 'Grave New World.' Mr. King's thesis is that the increased globalization of the past four decades is an anomaly in historical terms, and—in a nod to Francis Fukuyama —we're seeing 'the return of history…'

"The problem for investors is threefold. Even pessimists such as Mr. King accept that a full retreat from globalization is far from certain. If it happens, it could play out quickly, as it did with the Smoot-Hawley tariffs of 1930, or take a long time. And whenever it happens, no one is sure whether a reversal of globalization would lead to inflation, as tariffs push up prices and expensive workers replace cheap foreign labor, or to deflation, as the economy shrinks. Inflation and deflation require radically different responses from investors.

"The natural reaction from investors is the same as it's been to political dangers over the past five years: take no notice of the threat until it is impossible to ignore, typically when it is just months away, then panic …Perhaps the best alternative is to use part of a portfolio to hold insurance, in the form of what Mr. King calls a 'universally acceptable store of value,' physical gold. If the global trade and financial system retreats to national borders, gold becomes one of the few international assets. If everything turns out fine for free traders, the cost of the gold has to be thought of as an (expensive) insurance premium.

"'We're dealing with inherent deep uncertainty,' Mr. King says. 'It's all very well assuming that globalization is the natural order of things, but it's not. You should at least have a hedge.'" ("Globalization, Gold and the Return of History," WJS, 5/25/17.)

Arizona Joins States Recognizing Gold And Silver As Currency
TheStreet commentary explained the import of Arizona's new legislation recognizing gold as legal tender.

"On Monday, May 22, Arizona joined a growing number of states that will recognize gold as 'legal tender.' Why have these states decided to follow this extraordinary path and how significant is this to our current financial structure? The answers to these questions remain largely ignored but are extremely important and relevant to each of us…

"In their passivity, states empowered the Federal Reserve to dominate both the creation and the management our national currency on behalf of the federal government. But now things are changing. By introducing legislation that re-establishes their constitutional prerogative, states like Arizona are effectively endorsing a competing currency to the dollar. By making this choice for 'sound money' the states are saying, in effect, that the Fed has done a poor job of managing the currency and they are attempting to protect the wealth and savings of the citizens within their borders by providing them with an alternative to the endless supply of dollars being conjured up by the central bank…

"The inflation tax on every person holding "fiat money" whittles away at his or her savings and the future purchasing power of their assets. While the dollar (The Federal Reserve Note) has lost more than 97% of its purchasing power since the Federal Reserve System was created in 1913, gold and silver have acted as a much better store of value, rising 60 and 20-fold, respectively, in their dollar-denominated price…

"Arizona has chosen to follow the path of sound money and encourage the use of gold and silver as currency. This is money -- real money -- unencumbered by third parties or debt burdens assumed by others that cannot be repaid without monetary debasement or some other currency manipulation…." ("Return to Tender: Why Arizona and Other States Are Choosing Gold," TheStreet, 5/25/17.)

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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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