Gold and Silver Prices
Gold prices retraced some of its losses earlier this week but remained under pressure from a stronger dollar and signals from the Federal Reserve that it may raise interest rates in June.
“Gold prices held steady on Friday, hovering close to a three-week trough as the perspective of a June rate hike in the U.S. and a stronger U.S. dollar continued to weigh on the precious metal… Gold prices were hit after the Fed’s April meeting minutes on Wednesday showed that officials said a June rate hike would be appropriate if economic data indicated that growth was picking up in the second quarter and employment and inflation were firming…
“Prices of the yellow metal are up nearly 19% so far this year amid indications the Fed will take a slow and cautious approach to raising interest rates this year due to concerns over the global economy. A gradual path to higher rates is seen as less of a threat to gold prices than a swift series of increases….” (“Gold prices hold steady near 3-week trough,” Investing.com, 5/20/16.)
Gold ended the week down $20.90, closing at $1,252.90. Silver prices closed at $16.60, down $0.58.
Hedge Funds May Drive Gold Prices to $1500 – Yahoo! Finance
Yahoo! Finance reported that gold prices may raise significantly as hedge funds diversify with gold.
“Anthem Blanchard, founder and CEO of Anthem Vault, told Yahoo Finance’s Seana Smith that he doesn’t expect gold prices to fall much further. In fact, he sees $1,250 as a price floor for gold, and expects the metal to push even higher on the heels of its best rally in three decades. ‘$1,500 an ounce is not out of the realm of possibility… Seeing hedge funds come into the market institutionally has been a big catalyst for the price of gold,’ said Blanchard.
“A volatile market and global growth concerns prompted prominent investors to bet on the precious metal. Filings showed that billionaire George Soros, who sounded the alarm on the global financial markets by saying that China’s debt-fueled economy reminds him of the U.S. in 2007- 2008, has returned to the metal for the first time in years. Other major investors that sought safety in gold were Eaton Park and Bessemer Group….” (“One big reason why gold could be heading to $1500,” Yahoo! Finance, 5/18/16.)
Growing Call for Return to Gold Standard As World Approaches Next Great Recession – Bloomberg
Bloomberg discussed the growing number of experts and politicians who are urging a return to a gold standard to combat the reckless central bank policies threatening the economy.
“When times are tough, new economic theories get a better hearing. Maybe some old ones, too. The gold standard is one of the oldest ideas about money, but the hardest of hard-money hawks sense an opening to breathe new life into it. Decades ago, the amount of cash circulating in a country was often limited by the stash of bullion held in its coffers. Especially since 2008, developed-world policy has headed in the exact opposite direction, expanding the powers of central banks to stoke growth. Helicopter drops of money, potentially the next new thing, would be a giant leap further…
For those in the U.S. who see much risk and little benefit in the current course, gold is still a rallying point. And their audience may be growing. ‘The fringe has become the mainstream,’ said Jesse Hurwitz, a U.S. economist at Barclays Capital in New York. He sees the gold standard as a bad idea but “something we’ll increasingly talk about…’
“George Gilder thinks gold-standard ideas are on the way back whatever the politicians do. Founder and chairman of the Gilder Technology Group and a bestselling author who helped popularize supply-side economics in the Reagan era, he says the trillions of dollars that fly around global currency markets every day are a ‘bizarre abuse of capitalism” sucking vitality out of the real economy…
“Gilder sees a political backlash when negative interest rates start taking away people’s savings. Jim Rickards, chief global strategist at money manager West Shore Funds and author of ’The New Case for Gold,’ says the Fed and its peers have expanded their balance sheets to ‘the outer limit of confidence.’ Rickards helped negotiate the rescue of Long-Term Capital Management in the late 1990s and says it’s been downhill ever since. ‘In 1998, Wall Street bailed out a hedge fund. In 2008 the Fed bailed out Wall Street,’ he said. ‘What’s going to happen in 2018? It’s going to be the IMF bailing out the central banks.’
He sees a chance of ‘close to 100 percent’ that a downturn worse than the Great Recession is on the way in the next few years -- and then, ‘you’re going to be hearing a lot more about gold.’” (“Make America Gold Again: Calls for Everyone's Favorite Standard Are Back,” Bloomberg, 5/17/16.)
Economic Environment Favorable to Gold – Business Insider
Russ Koesterich, CFA, Head of BlackRock’s Global Allocation Fund’s Asset Allocation, explained why the current global economic environment is positive for higher gold prices.
“[C]entral banks are pushing the outer limits of monetary policy. This has had many odd side effects, not the least of which is a significant portion of sovereign debt today is trading at a negative yield...
“All told, this is a serious problem for yield starved investors. Ironically, one potential remedy is to take a second look at an asset class that provides no income: gold.
“As gold pays no interest or dividend, the opportunity cost of holding the precious metal is a critical driver of returns. During periods of low or negative real rates, when the opportunity cost is low, gold has generally performed better than in periods when real rates are higher… The best years for gold were those in which real rates were low and inflation was rising. Since 1971 there have been 12 years that fit that description, as Bloomberg data shows. Gold rose in 11 of those 12 years with an average return of over 35 percent.
“Given slow growth, a cautious Federal Reserve and the proliferation of negative sovereign yields in Japan and Europe, U.S. real rates are likely to remain low for the foreseeable future. At the same time, both core inflation and wages have been firming while the inflation drag from last year’s strong dollar and collapse in oil is beginning to fade. This is exactly the type of environment that has historically been most favorable to gold.” (“Conditions look pretty favorable for gold,” Business Insider, 5/18/16.)
Stagflation Sets Stage for Higher Gold Prices – Rodriguez
Joshua Rodriguez, founder of CNA Financial, noted the U.S. economy is experiencing stagflation which will send investors to gold as a safe haven asset.
“Demand for gold continues to rise in a big way, especially from billionaires... Many are blaming the increased demand for gold on stagflation.
“Most people have heard the terms inflation and deflation, but stagflation is a term that doesn't come up very often. Stagflation is defined as follows... “Persistent high inflation combined with high unemployment and stagnant demand in a country's economy.” Based on that definition, you can imagine that stagflation isn't a good thing by any means. Think about it, when inflation is high, prices are high. However, when demand is low and prices are high, sales fall apart. Now, combine this all with high rates of unemployment and what we could be looking at as the result of stagflation is an economic collapse.
“Although it may seem as though stagflation and gold are two very different topics. The reality is that the two are actually incredibly related. The reality is that as a safe haven investment, gold usually gains in value when economic or market conditions aren't doing very well. When stagflation is happening, it's a sign that economic and market conditions are on a downward trend. So, when stagflation is happening, it's generally a sign that gold is going to increase in value! …
“When it comes to inflation, we are definitely seeing incredibly high levels, especially given the low consumer demand…The only thing that doesn't seem to add up is unemployment... or does it? … The reality is that people filing for unemployment are limited in number. However, the workforce participation rate leaves much to be desired. In the United States, the workforce participation is just over 60%. This means that nearly 40% of the United States population is unemployed, regardless of the 5% number economists and the Fed continue to throw around. The bottom line is that what we're seeing here is indeed stagflation.” (“Will Stagflation Send Gold Skyrocketing Soon?” Gold -Eagle, 5/19/16.)