Trump’s Budget Chief Loves Gold – Business Insider

Release Date: 
Friday, December 30, 2016

Gold prices fell slightly on the last trading day of 2016 but nonetheless ended the week and the year in positive territory.

“Precious metals gained in this final trading day of 2016 as the dollar index pulled back from the 14-year highs it hit late this month. Thanks to strong early-year performances, both gold and silver will log sizable gains for the year, their best annual showing since 2012… Gold has dropped in December as the dollar gained and Treasury yields rose amid speculation for Trump’s pledged stimulus measures, which remain light on details. Increased spending has prompted some forecasters to crank up their inflation predictions. And, while pro-growth sentiment has been negative for gold in the short run, deeper inflation risks could eventually have the reverse effect and revive demand for gold as a haven investment.

“Even with a negative performance likely for all of December, gold and silver are poised for their most robust annual gains since 2012. For gold, that comes courtesy of a some 30% first-half price surge when global economic uncertainty and a surprise Brexit vote for a U.K. split from the European Union pared the global interest-rate outlook. Gold is headed for a roughly 8% advance and silver is up 17% for 2016….” (“Gold gains, will snap worst weekly skid in 12 years,” MarketWatch, 12/20/16.)

Gold ended the week up $18.70, closing at $1,151.90. Silver prices closed at $15.98, up $0.20.

Trump’s Budget Chief Loves Gold – Business Insider
Business Insider reported that Mr. Trump’s choice to head the Office of Budget and Management has invested significantly in gold and other precious metals.  

“The man in line to bring together President-elect Donald Trump's federal budget is a big believer in gold, according to financial disclosures. Mick Mulvaney, Trump's pick to lead the Office of Budget and Management, owns significant amounts of precious metals and gold-mining stocks based on financial disclosures compiled by Bloomberg…

The heavy investments into gold is not surprising given past criticism by Mulvaney of the Federal Reserve. In a speech obtained by Mother Jones, Mulvaney told the John Birch Society, a group that believes the only legal forms of currency are gold and silver coins, that the Fed had ‘effectively devalued the dollar’ and ‘choke[d] off economic growth....’” (“Trump's pick for budget chief loves gold and bitcoin,” Business Insider, 12/29.16.)

Gold Rally In 2017; Top Forecaster Sees $1422 Gold - Bloomberg
Bloomberg reported that a Trump presidency is sparking a new interest in gold with many analysts forecasting a gold rally in 2017.

“The Donald J. Trump era is marking a new age for gold as an investor safe haven. While the precious metal has always been hoarded in times of trouble, a bevy of political and economic surprises in 2016 sparked a surge in buying that sent bullion to the first annual gain in four years. Prices may rally 12 percent in 2017, according to a Bloomberg survey of 26 analysts...

“Fueling the bullish outlook is the risk of chaos on multiple fronts: a possible trade war from America’s fraying relationship with China, the alleged Russian hack of U.S. political parties, the U.K.’s complicated exit from the European Union, and elections slated in France, Germany and the Netherlands that may see a rise of nationalist groups. And then there are Trump’s frequent Twitter posts, in which the U.S. president-elect feuded with rivals and made declarations that unsettled allies even before he takes office Jan. 20…

“More than two thirds of the analysts and traders surveyed from Singapore to New York said they were bullish for 2017. The median year-end forecast was $1,300, with the year’s peak seen at $1,350. Two, including O’Byrne, said the metal may reach $1,600… Four of the analysts in the Bloomberg survey predicted bullion would drop below $1,000 in 2017, particularly if the Federal Reserve raises interest rates three times next year and Trump makes good on his pledge to boost infrastructure spending to spur economic growth…

“Still, signs of optimism remain. A poll by Bloomberg Intelligence on Nov. 10 showed 42 percent of respondents predict gold will be the best-performing metal in 2017. Ronald Stoeferle, managing partner at Incrementum AG and the most-accurate among the precious-metals forecasters tracked by Bloomberg last quarter, said the metal will rally to $1,422 because the Fed may turn out to be more dovish than expected, which would mean an acceleration of inflation that boosts the appeal of gold….” (“Gold Lures Investors Worried About Trade Wars and Trump Tweets,” Bloomberg, 12/29.16.)

Gold To Average $1350 In 2017 – UBS
The Swiss banking giant UBS sees gold prices rising much higher to average $1350 in 2017.

“Swiss bank UBS looks for gold to average $1,350 an ounce in 2017, characterizing the metal as down but not out after significant price declines over the last few weeks. Strategist Joni Teves said that the bank’s higher gold-price expectation has been tapered to reflect moves across a range of markets after U.S. elections, with expectations that fiscal stimulus will boost economic growth and yields…

“UBS thinks gold is now looking attractive around these levels and would buy into further weakness, gradually building a long-term gold position ‘A few weeks ago, we set our three-month forecast for gold at $1,300; while the recent pressure on the market makes this target look ambitious, we continue to expect gold to make its way back towards this level in the months ahead as the rationale for holding gold from a strategic standpoint remains intact, in our view…

The key for gold, UBS said, will be real interest rates, which is the yield on government bonds –traditionally 10-year notes -- minus inflation… ‘A compression in real yields amid easy monetary policy or risk-off scenario would also be positive for gold.’ Still, the bank acknowledges that the downside risk to its base-case scenario has increased. Any downside in gold could accelerate if real yields rise on a sustained basis.” (“Gold prices likely to average $1,350 an ounce in 2017,” ScrapRegister, 12/29/16.)

Good Time To Accumulate Gold – Holmes
U.S. Global Investors CEO Frank Holmes offered a technical analysis of gold which signaled this is the time to accumulate the yellow metal.

“In more ways than one, 2016 was a roller coaster year.  One need only look at gold’s performance to confirm this… [G]old is now down more than two standard deviations from its mean, or average, dollar amount. The reason I show you this is because, in the past, this was a good time to begin accumulating, as mean reversion soon followed.

“The 2-year Treasury yield, meanwhile, is looking overbought and set to correct, based on our model. I’ve explained several times before how gold has tended to share an inverse relationship with Treasury yields. The math suggests a nearly 90 percent probability that mean reversion will occur over the next three months, with yields falling and the gold price rising back to its mean…

“U.S. debt dynamics are expected to turn positive for gold in 2017. That’s according to ICBC Standard Bank, which makes the case that the costs of higher yields are being overlooked … Any disappointments on the growth front, then, combined with higher interest costs and contentious negotiations on raising the debt ceiling in the first quarter, could well result in a more bullish scenario for gold…

“Gold’s rarity is one of the key reasons why it’s so highly valued across the globe and for most of recorded human history.  ‘Peak gold’ has been a topic for years now, with major discoveries on the decline. According to a recent Bloomberg article, the number of new gold deposits discovered in 2015 was down a whopping 85 percent since 2006 … Regardless of when peak gold might occur, it’s pretty widely accepted that all of the low hanging fruit, with regard to major deposits, has already been picked. As a consequence, we’ll likely see an increase in gold recycling, but the metal’s price could also rise as supply becomes restricted….” (“Gold Technically Oversold, Ready for a Price Reversal,” Kitco, 12/28/16.)

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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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