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Gold prices shot past $1300 per ounce this week after an extremely weak jobs report worried investors about the US economy.
"Gold prices jumped on Friday to their highest since late February, as a sharp slowdown in U.S. jobs growth sent the dollar lower on growing expectations that the Federal Reserve would cut interest rates this year.
"Gold has also benefited from concerns that U.S. trade wars with Mexico and China will slow the global economy. The precious metal is up 2.9% so far this week, on track for its biggest weekly gain since April 2016...
"Chances 'have significantly increased that the U.S. Federal Reserve is going to lower interest rates sooner rather than later, and that is also working in favour of the precious metals bulls...'" ("Gold heads for biggest weekly gain in 3 years on weak US jobs data," CNBC, 5/31/19.)
Gold ended the week at $1,340.90. Silver closed at $15.07.
Hedge fund manager Stanley Druckenmiller told CNBC that the weak jobs report will move the Federal Reserve to lower interest rates by this Summer.
"Billionaire hedge fund manager Stanley Druckenmiller says a weak May jobs report would put the Federal Reserve on a pivot to easing monetary policy before the end of the summer. 'If the job number is weak, given everything else they are saying, the Fed will be on a clear easing path by July,' Druckenmiller said Friday...
"After he spoke, the government reported that the economy added only 75,000 jobs in May. Economists polled by Dow Jones were expecting 180,000 new jobs... On Tuesday, Federal Reserve Chairman Jerome Powell said the central bank is "closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion," essentially opening the door to rate cuts..." ("Druckenmiller says a weak jobs report would put the Fed 'on a clear easing path by July'," CNBC, 6/7/19.)
European dealer Degussa Goldhandel GmbH issued its market report reviewing gold's performance versus the US Dollar.
"I always find it quite surprising that many people do not have a proper idea about the value performance of gold. So let's take a closer look at it. In the period 1970 to 2018, for instance, the annual increase in the US dollar price of gold (per ounce) was 9.9 per cent on average. Subtracting the annual increase in consumer prices (which was around 4 per cent per annum on average), the real increase in the price of gold was 5.9 per cent per year on average. That said, gold's long-term value performance looks pretty good. But how does it compare with its major competitor, the US dollar?
"If you had held 1 US dollar in cash, your purchasing power would have dropped by around 85 per cent from 1970 to 2018. However, this might not be a fair comparison. For holding US dollar in bank accounts gave you an interest rate. So what did you earn if you had held, say, a US dollar bank deposit with a 3 month maturity? The answer: 1 US dollar would have grown (compounded) into 8.6 US dollar. The return of your Greenback holdings (before tax) would have been 4.6 per cent per year on average - which is only slightly higher than average inflation and much lower than the real increase in the price of gold.
So yes, gold has clearly outshined the US dollar in the long-term. In contrast to the US dollar, gold has not only proven its store of wealth function, it has also managed to raise its purchasing power over time. Ok, this may be water under the bridge. What about the future? Of course, the future is pretty much uncertain. But there are at least some factors which support the expectation that gold will continue to outperform the US dollar (or other unbacked paper currencies). Perhaps most important: There is no end in sight of the monetary policy of extreme low interest rates...
Gold is insurance against the US dollar - which is, by the end of the day, an unbacked paper currency like any other, and it can be debased quite easily by central bank monetary policy. In fact, there is good reason to expect that gold's value performance in the years to come will match, perhaps even exceed, the one seen in the last 50 years. (Degussa Market Report, 6/6/19/; emphasis added)
Business Bank ABN AMBRO affirmed its bullish forecast of $1400 gold on a weaker US Dollar.
"In recent weeks, uncertainty on financial markets has increased because of the escalation of the trade tensions between the US and China, weakness in equity markets and higher uncertainty surrounding Brexit. Initially, gold prices barely profited because the US dollar was resilient as well. At the end of last week this changed however. A further escalation of trade tensions has resulted in a considerable drop in US nominal yields, a drop in US real yields, increased Fed rate cut expectations and a weaker US dollar. As a result, gold has taken out USD 1,300 per ounce again and have since rallied above USD 1,325 per ounce.
"Gold has moved up in an environment of higher equity market volatility and more uncertainty on financial markets, giving the appearance of a classic safe haven reaction. However, we strongly believe that the surge in gold prices has happened because of broad dollar weakness rather than safe haven demand for gold. investors that the dollar rally is over which is bullish for gold prices...
"We remain positive on the outlook for gold. First, the decline in gold prices came to a halt above and relatively closely to the 200-day moving average, and thereafter prices bounced higher. This is a positive development from a technical point of view, and strengthens our case that gold prices will rally towards the end of this year. Our year-end target is USD 1,400 per ounce..." ("Precious Metals Watch - We remain positive on gold," ABN AMBRO, 6/5/19; emphasis added.)
Casey Report chief analyst Nick Giambruno identified several factors that will send gold on its greatest rally in 50 years.
"Casey Report chief analyst Nick Giambruno recently laid out ... specific catalysts that will send gold on an epic rally... its biggest in 50 years. He says we're on the cusp of a new monetary era... one that will put gold back in its rightful place at the center of the international monetary system. And now is the time to take advantage...
"Nick Giambruno: An epic gold bull market is on the menu for 2019. I'm not talking about a garden-variety cyclical gold bull market, but rather one of the biggest gold manias in history... The last time the international monetary system experienced a paradigm shift of this magnitude was in 1971. Then, the dollar price of gold skyrocketed over 2,300%... So let's get right into it, starting with the first four catalysts that will send gold prices higher...
"No. 1: Basel III Moves Gold Closer to Officially Being Money Again. The Bank for International Settlements (BIS) is located in Basel, Switzerland. It's often referred to as "the bank of central banks." ... On April 1, 2019, Basel III went into effect around the world. Buried among what was mostly confusing jargon was something of huge significance for gold ... gold's official role in the international monetary system has been upgraded for the first time in decades. Banks can now consider physical gold they hold, in certain circumstances, as a 0% risk asset... Basel III is giving gold more official recognition in the international financial system. It represents a step towards the re-monetization of gold... and the recognition of this powerful trend in motion.
"No. 2: Central Banks Are Buying Record Amounts of Gold. "Countries are treating gold as money for the first time in generations...
"No. 3: Oil for Gold - China's Golden Alternative. "In 2017, when tensions with North Korea were rising, Trump's Treasury secretary threatened to kick China out of the U.S. dollar system if it didn't crack down on North Korea. If the threat had been carried out, it would have been the financial equivalent of dropping a nuclear bomb on Beijing... "China would rather not depend on an adversary like this. This is one of the main reasons it created what I call the "Golden Alternative." ... That's why China has explicitly linked the crude futures contract with the ability to convert yuan into physical gold ... With China's Golden Alternative, a lot of oil money is going to flow into yuan and gold instead of dollars and Treasuries. CNBC estimates that the amount of redirected oil money will eventually hit $600-$800 billion. Much of this will flow into the gold market, which itself is only $170 billion.
"No. 4: The Fed's Dramatic Capitulation. In the wake of the 2008 crash, the Federal Reserve instituted several emergency measures. The chairman at the time, Bernanke, promised Congress they would be temporary. This included money-printing programs euphemistically called "quantitative easing" (QE). Through QE, the Fed created $3.7 trillion out of thin air...
"After nearly six years of 0% interest rates, the U.S. economy is hooked on the heroin of easy money. It can't even tolerate a modest reduction in the Fed's balance sheet and 2.5% interest rates, still far below historical averages. In other words, this monetary tightening cycle is over. The next move is a return to QE and 0%, and perhaps negative, interest rates. These moves would, of course, weaken the dollar and be good for gold. By flipping from tightening to signaling future easing, the Fed has turned a major headwind for the gold market into a tailwind. ("Here's what will Trigger an Epic Gold Rally, It's Biggest in 50 years - Time to Act is NOW,' Commodity Trade-Manta, 6/6/19; emphasis added.)
MarketWatch reported that a weaker dollar and a new round of Quantitative Easing could lead to new record gold prices.
"Gold has moved higher for the year, after stalling just below the $1,300-an-ounce mark for weeks. All the factors for the metal to rally to record levels might finally be falling into place. 'Gold does well in a period of dollar weakness, inflation and economic uncertainty,' says Peter Schiff, chief global strategist for Euro Pacific Capital, a division of Alliance Global Partners. 'We are about to get all three...'
"In Schiff's view, the economy is approaching a 'severe recession' that will prompt the central bank to launch another round of quantitative easing, or asset buying, to drive down interest rates. He predicts that the next round of QE will be much larger than prior ones. 'Given that, gold should be rocketing upward ... When sentiment finally changes, gold could rocket from its currently well-established base to levels much higher than the prior highs established almost a decade ago,' Schiff says. Prices topped $1,900 an ounce in September 2011..." ("Gold's latest rally hints at a return to record price levels," CNBC, 6/7/19.)