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Gold Reaches Two Week High on Tariff Worries
Gold prices rose significantly this week as the threat of new tariffs sent investors to the yellow metal.
"Gold scaled a more than two-week peak on Friday and was en route for its first monthly gain in four after Washington's threat of tariffs on Mexico exacerbated fears of a global economic downturn, driving investors to perceived safe havens... Financial markets were rattled by the possibility that the United States and beyond could be tipped into recession.
"Meanwhile, expectations of a cut in interest rates by the U.S. Federal Reserve increased after recent weak economic readings from the United States added to concerns raised by the prolonged U.S.-China trade dispute... Lower interest rates would support gold because they reduce the opportunity cost of holding non-yielding bullion.... ("Gold Hits Two-Week High After Latest Trump Tariff Threat," Reuters, 5/31/19.)
Gold ended the week at $1,305.90/oz. Silver closed at $14.66/oz.
Billionaire Thomas Kaplan, chairman and chief investment officer of Electrum Group, was interviewed on Bloomberg's "Peer-to-Peer Conversations," about gold's next bull run which Mr. Kaplan sees reaching new record highs relatively quickly.
"I would focus on precious metals that don't have a direct relationship to the economy... Have some gold, have some silver, put it away for a rainy day and I hope that you'll make a lot of money on it just because ... the supply-demand equation is very favorable.
"My belief is that there are two scenarios. One ... gold has already broken out and is coiling like a snake ... to take on the old highs. There is an alternate possibility that gold has one more head fake to the downside to shake out the weak hands ... but then I do believe gold embarks on the next leg of its bull market and goes past $1900 and ultimately goes to $3 to $5,000 if not a lot higher depending on macro circumstances..
"The first leg in gold took gold from $250 to $1900. For twelve consecutive years gold was up every single year whether there were inflation fears, deflation fears, strong dollar, weak dollar, political stability, political instability ... strong oil, weak oil, it didn't matter: gold went up for twelve years. That for me is a bull market. We've now been in a correction ... You could easily see gold go down a couple of hundred dollars before it going up a couple thousand dollars... When gold embarks on its next move I believe you will see that long wave take gold relatively quickly to the $3-5,000 target that I believe is fundamentally justified...." ("David Rubenstein Show: Peer to Peer," Bloomberg TV, 5/29/19; emphasis added.)
Tim Price, manager of the VT Price Value Portfolio and author of "Investing Through the Looking Glass: a rational guide to irrational financial markets" explained why his wealthy clients all own gold in their portfolios.
"Few assets are more misunderstood than gold. Central bankers quietly amass it, even as they publicly denounce it. It is widely regarded as redundant, what Keynes called "a barbarous relic", in a world of electronic money. So why own gold at all? And more urgently, why own gold now? ...
"Why own gold? Because it makes sense, within a properly diversified portfolio, to have portfolio insurance. If you own a home, it makes sense to have fire insurance. Your investments are no different. And gold is now back, more relevant than ever. Since the start of the millennium gold, as expressed across a wide variety of currencies, has generated average annualised returns of over 9%.
"Within my wealth management business, we allocate client capital across four main asset classes: Cash and objectively high quality debt; 'Value' equities, internationally; Uncorrelated funds; Real assets, notably the monetary metals, gold and silver
"Our objective is not to maximise returns per se. Our clients are already wealthy. Rather, our objective is to try and generate a meaningful return on their capital while simultaneously ensuring that these portfolios are not subject to the risk of a catastrophic permanent loss of capital. That means, in part, genuine asset diversification...
"Cash and bonds both come, inevitably, with credit and counterparty risk. A depositor in a bank is effectively an unsecured creditor to that bank... But when it comes to credit and counterparty risk, gold comes with neither. Gold does not rely for its value on the solvency of some third party. It is not a claim against anything. Which is why gold is the perfect insurance against the failure of conventional money or the default of conventional debt. It is why gold is a more perfect form of money than any government-issued alternative...
"We face grave threats and growing uncertainties within the financial markets. Gold doesn't solve all of the world's problems and it would be silly to believe it does. But as an alternative to keeping flawed money in a flawed banking system, it's a useful start. It's a hedge against both inflation and systemic financial distress. And it's the best performing 'money' in counterparty risk and purchasing power terms that you can own. So, here's to gold - the once, and perhaps future, money...." ("Why gold matters," MasterInvestor, 5/30/19; emphasis added.)
Market technical analyst Chris Vermeulen's current research forecasts a rally in gold to above $1375 in the next five to seven weeks.
"Here we go again.. We've been nailing the Precious Metals moves for many months and we've heard from many of our followers and members about our research. Some of you might remember our November 24, 2018 prediction that Gold would rally above $1300, then stall and set up a "Momentum Base pattern near April 21~24, 2019". We find it incredible that we can make a prediction about Gold nearly 6+ months ahead of the move using our proprietary predictive modeling tools and then sit back and wait for it to happen just as we predicted...
"Our current research suggests the bottoming is over and the new price leg should begin to prompt a Gold price rally over the next 5~7+ weeks targeting a level well above $1375 initially. This Daily Gold chart highlights the price rotation and the Double-Bottom that has currently set up in Gold. Our proprietary Fibonacci price modeling system is suggesting an upside price leg targeting at least $1330 (on this Daily chart) will become the initial upside price leg...
"As we've been saying for many months, get ready and here we go. Once the protectionist moves into Cryptos have waned and traders realize the magnitude of this potential precious metals rally (as well as the fact that Cryptos will not provide the same level of protection as precious metals), the hunt for the shiny metals will be on. It would be very wise to stay well ahead of this move and prepare for this upside leg now... This next upside price move could target the $2100 to $2400 level if it extends into a complex advancement wave. That would mean Wave C could end well above $2100 and that Wave E could target the $5000 level or much higher...." ("Contributed Commentaries Extended Gold Mega Base Could Prompt An Incredible Rally," Kitco, 5/29/19.)
Investment and asset-management firm Incrementum AG issued a special edition of its In Gold We Trust report warning that developing political, social, economic, and technological upheavals threaten the global economy and why gold will thrive with these upheavals.
• Trust is the basic value of interpersonal cooperation and the cement of our social order. The erosion of our "trust capital" can be observed in many areas of society.
• The breakdown of trust in the international monetary order is manifesting itself in the highest gold purchases by central banks since 1971 and the ongoing trend to repatriate gold reserves.
• Gold reaffirmed its portfolio position as a good diversifier as trust in the "Everything Bubble" was tested in Q4/2018. While equity markets suffered double digit percentage losses, gold gained 8.1%...
• The normalization of monetary policy was abruptly halted by the stock market slump in Q4/2018. The "monetary U-turn" that we already forecasted last year has begun.
• Recession risks are significantly higher than discounted by the market. In the event of a downturn, negative interest rates, a new round of QE, and the implementation of even more extreme monetary policy ideas (e.g. MMT) are to be expected.
• When it comes to trust in investments, our vote is clear. Trust looks to the future, forms itself in the present, and feeds itself from the past. Gold can look back on a successful five-thousand-year history as sound money...
"The developing political, social, economic, and technological upheavals are enormous. On many fronts confidence in the existing order is crumbling, while the new order has not yet gained enough trust to have a stabilizing effect. This trend will intensify in the coming years. In addition, the bubbles in the equity, bond, and real estate markets - the Everything Bubble - and the corrosive dynamic of overindebtedness further exacerbate the fragility of markets - month after month, week after week, day after day. We expect significant upheavals in the coming years, with a substantial impact on the gold price...." ("Gold in the Age of Eroding Trust, Incrementum, 5/28/19; original emphasis.)
One of the top investment bankers, Morgan Stanley, told investors that the U.S. economic outlook is deteriorating and there are signs of a pending recession.
"The stock market and economic outlook in the United States are 'deteriorating,' according to an analysis from one of Wall Street's top investment banks. Renewed trade tensions and a slump in economic data - ranging from falling durable goods and capital spending to a downshift in the services sector - has put U.S. profits and economic growth at risk, Morgan Stanley warned Tuesday.
"'Recent data points suggest US earnings and economic risk is greater than most investors may think,' wrote Michael Wilson, the firm's chief U.S. equity strategist. Specifically, the stock strategist highlighted a recent survey from financial data firm IHS Markit that showed manufacturing activity fell to a nine-year low in May. That report also revealed a 'notable slowdown' in the U.S. services sector, a key area for an American economy characterized by huge job gains in health care and business services...
"The stock market sold off Tuesday, adding to steep losses for the month of May. The Dow fell 237 points and the S&P dropped 0.8% during the session; they are down 4.6% and 4.8% this month, respectively...." ("Morgan Stanley says economy is on 'recession watch' as bond market flashes warning," CNBC, 5/28/19.)