Gold and Silver Prices
A stronger dollar sent gold prices lower on Friday as the yellow metal remained largely range bound for the week.
“Gold edged down on Friday, as the dollar steadied from a five-month low, but it remained on track to end the week on a firmer note after the Federal Reserve scaled down rate hike expectations…
“’There has been a bit of selling into the rally in the past couple of days but on whole gold has managed to hang on to its gains,’ Mitsubishi Corp analyst Jonathan Butler said. ‘With the dovish overall macro outlook - the Fed's more dovish stance and ECB and Bank of Japan also pursuing very aggressive stimulus policies - affecting the strength of the dollar and U.S. Treasury yields, gold should benefit…’
“Silver rose more than 1 percent to its highest since late October at $16.13. It is up 4 percent this week….” (Gold edges down, still heading for weekly gain on Fed rate outlook,” Business Standard, 3/18.16.)
Gold ended the week up $4.90, closing at $1,256.00. Silver prices closed at $15.89, up $0.32.
Gold Could Reach $6,500 by 2019 – Energy & Capital
The energy website Energy & Capital wrote that, based upon a technical analysis of gold’s prior bull markets, gold may hit $6,500 by 2019.
“Gold prices are gearing up for another big run. Economists expect the Fed to leave interest rates unchanged when policymakers meet this week. Following that decision, however, many will begin to focus on the central bank’s next move. And that's where things get really interesting for gold...
“Rising inflation, recovering oil prices, and a stronger job market are all expected to prompt the Fed toward normalization. The longer-term rate of inflation nearly doubled in January to 1.3%, the highest level since the fall of 2014. Last week, Federal Reserve Vice Chairman Stanley Fischer even said, ‘We may well at present be seeing the first stirrings of an increase in the inflation rate, something that we would like to happen…’
“Also supporting gold prices are extremely solid supply and demand fundamentals. The World Gold Council reports that total gold supply fell 4% last year to its lowest levels since 2009, led by a drop in mine supply. This year, gold mine production is expected to continuing falling due to development cutbacks over the past several years and a reduction in the gold purity of mined ore.
“Meanwhile, the WGC says investment demand for gold increased 15% last year — not including the world's central banks, which also increased their holdings by 25% in 2015. This year we've already seen a massive spike in gold investment activity in terms of bullion sales.
“I believe that the gold bull market started in the summer of 2001. And it hasn't stopped. In fact, it's actually going exactly as expected. And right now, the gold market is on the cusp of one of the biggest moves yet...
The fact is, the price of gold actually shed 40% during the great bull market of the 1970s between December 1974 and August 1976. We just saw the same exact thing happen between September 2011 and December 2015 (when the Fed decided to raise interest rates for the first time in a decade): a 40% decrease in gold prices.
“And here's where things get really exciting... Most investors don't realize that the biggest price moves of the 1970s gold bull market took place in a very short period of time. The average monthly gold price increased 514% between August 1976 and January 1980. With the Federal Reserve beginning to raise interest rates and solid supply/demand fundamentals going into 2016, we could be headed for similar gains. And an equivalent 514% increase from the bottom of prices back in December could put gold at over $6,500 an ounce by 2019….” (“Will Gold Prices Hit $6,500 by 2019? Energy & Capital, 3/14/16.)
World’s Largest Reinsurer is Shifting Assets to Gold – Reuters
Reuters reported that the world’s largest reinsurer (a reinsurer is essentially an insurance company for insurers), Munich Re, is increasing its gold reserve to counter the negative interest rates imposed by the European Central Bank.
“German reinsurer Munich Re is boosting its gold and cash reserves in the face of the punishing negative interest rates from the European Central Bank, it said on Wednesday. The world's largest reinsurer is far from alone in seeking alternative investment strategies to counter the near-zero or negative interest rates that reduce the income insurers require to pay out on policies.
“Munich Re has held gold in its coffers for some time and recently added a cash sum in in the two-digit million euros… ECB policy has caused financial market interest rates to fall, reducing the return that insurance companies can earn from investments in bonds, hurting profit and raising concerns about their ability to meet future promises to policyholders.” (“Munich Re stashes gold and cash to counter negative rates,” Reuters, 3/16/16.)
Should Investors Buy Gold? “Yes!” – Kramer-Miller
Ben Kramer-Miller, chief analyst at MiningWealth.com, penned a commentary stating the risk/reward for buying gold is compelling.
“Gold has risen significantly off its December low. Our fortuitously timed call came within a day of the London PM Fix low, although it was motivated by fundamental factors for which we've been patiently waiting. Maybe gold hasn't bottomed, but we believe the nominal low is either in or will be so within the next couple of months, making the risk/reward very compelling…
“Of course nobody really knows whether the gold price will rise or fall in the near-term. What we do know is that we are seeing signs that should indicate that we have seen, or are within months of seeing a nominal bottom on the gold price…
“Our feeling is that there is tremendous value in gold and we've just seen an historically useful "buy" signal-gold has historically performed very well during cyclical rate hike cycles, and it has been in extended secular bull markets during secular rate hike cycles such as during the 1970's… While the gold price has risen even above where it traded when rates peaked in the early 1980's its value has rarely been as compelling as it is today…
“So, Ben, Should We Buy Gold? The short answer is: ‘Yes!’ Those readers who are able should put money into gold on a regular basis and dollar-cost-average into the market. This is a good way to keep yourself disciplined while affording yourself the opportunity to buy more when prices are low…
“But the bottom line is that gold appears to be attractive at the current valuation, and as we pointed out a year ago gold's 21st century strength has not been sufficient to bring the valuation up relative to the incredible onslaught of monetary stimulus we've seen, especially since 2008. As short-term rates rise the relative value of paper assets will decline, while gold's tangible value will be a more attractive alternative, until it isn't even view as ‘an alternative.’” (“Gold Is Soaring Since We Said 'Buy'! What Now?” Seeking Alpha, 3/16/16.)
Global Economy Nears Danger Zone for Next Great Recession – Telegraph
The Telegraph’s Ambrose Evans-Pritchard warned readers that the Federal Reserve’s reaction to rising inflation may soon swamp the world economy and lead us to the next Great Recession.
“The trigger for the next global recession is at last coming into view after a series of loud distractions and false alarms. The Atlanta Federal Reserve's gauge of ‘sticky-price’ inflation in the US soared to a post-Lehman peak of 3pc in February. This index is a 'pure' measure of core inflation - the underlying story once the noise is stripped out.
“The Cleveland's Fed's 'median consumer price index' jumped to 2.9pc, with big rises are in medical services, housing rents, car insurance, restaurants, hotels, women's clothing, jewelry, and car hire. This is the long-feared inflexion point we all forgot about in those halcyon days of deflation, now just a fond memory.
“The Fed's veteran vice-chairman Stanley Fischer is itching to tighten. ‘We may well at present be seeing the first stirrings of an increase in the inflation rate,’ he said in a portentous speech last week.
“Every major downturn since the First World War has been caused by the Fed, determined to snuff out inflation as the credit cycle matures. Expansions rarely die of old age. They are killed. There may have been other factors in each historical episode - the oil shocks of the 1970s, or the first Gulf War in 1991 - but the Fed has been the determining catalyst each time…
“Nobody knows how much US tightening the world can bear… What we know is that dollar debts outside the US have reached a record $10.8 trillion, and as the BIS warns, borrowing costs across the world are likely to rise in lockstep as the Fed lifts rates even if debt is in local currency… We have a dollarised global system with an average debt ratio that is 36 percentage points of GDP higher than it was at the peak of the last cycle, and that has never been so leveraged to the actions of the Fed. It is not cheap oil you have to worry about. The moment of maximum danger will come when oil recovers.” (“US inflation rears its ugly head as global cycle nears danger zone,” 3/15/16.)