Investors Need Gold to Protect Portfolios

Release Date:  Saturday, July 27, 2019
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Gold Prices Rise On Friday

After a volatile week with pressure from profit taking and a stronger dollar, gold prices rose on Friday.

"Gold firmed on Friday, having shed 1% in the previous session on robust U.S. jobs data, with investors awaiting further economic readings from Washington that could drive sentiment going into next week's Federal Reserve meeting...

"Prices were still on track for a first weekly drop in three, pressured in part by a stronger dollar and spillover from Thursday's slide after comments from European Central Bank Governor Mario Draghi lowered expectations for an immediate cut to interest rates. Draghi cautioned against pulling the trigger too quickly on policy easing, though he all but pledged to loosen monetary settings further as the growth outlook deteriorates...

"Capping gold's momentum, the dollar held near two-month highs as the market awaited second-quarter U.S. gross domestic product numbers that are expected to show the slowest growth in more than two years... 'The market will now focus its attention on next week's Fed meeting ... if Fed Chair Powell indicates that a rate cut cycle is imminent, the dollar is likely to depreciate, which should in turn benefit gold,' Commerzbank said in a note...."

Gold ended the week at $1,419.30/oz. Silver closed at $16.45/oz.

Investors Need Gold to Protect Portfolios - JP Morgan

Analysts at JP Morgan Chase offered a chilling warning that the United States Dollar could lose its hallowed status as the world's reserve currency and harm investors who aren't diversified with gold.

"The U.S. dollar (USD) has been the world's dominant reserve currency for almost a century. As such, many investors today, even outside the United States, have built and become comfortable with sizable USD overweights in their portfolios. However, we believe the dollar could lose its status as the world's dominant currency (which could see it depreciate over the medium term) due to structural reasons as well as cyclical impediments. As such, diversifying dollar exposure by placing a higher weighting on other currencies in developed markets and in Asia, as well as precious metals makes sense today...

"In other words, in the coming decades we think the world economy will transition from U.S. and USD dominance toward a system where Asia wields greater power. In currency space, this means the USD will likely lose value compared to a basket of other currencies, including precious commodities like gold...

"Central banks across the globe are also adding to gold reserves at their strongest pace on record. 2018 saw the strongest demand for gold from central banks since 1971 and a rolling four-quarter sum of gold purchases is the strongest on record. To us, this makes sense: gold is a stable source of value with thousands of years of trust among humans supporting it...

"Currently 85% of all currency transactions involve the USD despite the U.S. accounting for only roughly 25% of global GDP. Countries around the world are already developing payment mechanisms that would avoid using the dollar. These systems are small and still developing but this is likely to be a structural story that will extend beyond one particular administration...

"We believe we are at an important juncture. On a real basis, the dollar stands currently more than 10% above its long-term average and on a nominal basis has actually been trending lower for 50 years... Given the persistent-and rising-deficits in the United States (in both fiscal and trade), we believe the U.S. dollar could become vulnerable to a loss of value relative to a more diversified basket of currencies, including gold. As we scan client portfolios, we see that many of them have far more U.S. dollar exposure than we feel is prudent. At this stage of the economic cycle, we believe this exposure should be more diversified. In many cases, our recommendation would likely be to place a higher weighting on other G10 currencies, currencies in Asia and gold...." ("Is the dollar's "exorbitant privilege" coming to an end?," JP Morgan Chase, 7/10/19.)

New Gold Bull Market Can Spike Above $2,000 - Celente

Gerald Celente, publisher of The Trends Journal and a gold bear, now believes that loose monetary policy will fuel gold's new bull market, sending the yellow metal above $2,000.

"I haven't been bullish on gold for a long time... And now on June 6 we announced to our subscribers a new bull run... The next breakout point had to be $1,450. I believe when it breaks beyond that, it's going to spike towards the $2,000 mark.

And it's very simple. The whole world, very central bank, you name the place... are going into record low interest rates, the European Central Bank now talking about now going into minus 0.5 negative rates ... they're all lowering interest rates around the world to keep pumping more monetary methadone to keep the fake, addicted bull run going. So that's why we say gold is only going to go up because currencies around the world are just going to get weaker...

We are also forecasting the greatest depression. And we believe it will hit after the 2020 presidential [election]. The other reason we forecast the gold bull run is the Federal Reserve is going to continue to lower interest rates this year and next... They are going to do everything they can to prop up the equity markets... The debt bubble which is now well over $250 trillion is going to burst. There's not a lot of juice left in the monetary methadone... That is why we're saying the gold bull run is real and, again, when it breaks over $1450 an ounce, that's our breakout point for the spike moving towards the $2,000 range and above...

"Go Back to 2018...central banks bought more gold than they had in fifteen years. So they know it's tough. You mentioned Ray Dalio. Here's the guy who is the head of the largest hedge fund in the world coming out and talking about gold. I remember when they wouldn't follow gold on the major networks. And now you have the head of the biggest hedge fund in the world saying 'go gold....'" ("$2,000 Gold Price Could Be On the Way," Kitco News, 7/26/19.)

Gold is Life Insurance - Dillian

Jared Dillian, an investment strategist at Mauldin Economics, penned a commentary for MarketWatch about the importance of gold to protect investors when the world goes "haywire."

"I love gold. And silver and platinum. I love them philosophically, and I also just like shiny rocks... I am not going to get too deep into the philosophical reasons for owning shiny rocks, but briefly:

  • In recent history, the government has had a habit of abusing its currency.
  • Most governments abuse their currencies.
  • Gold is an objective store of value, while the dollar is a subjective store of value.
  • Big deficits will probably be monetized. Some lunatics want to inflict Modern Monetary Theory (MMT) on everyone.
  • Inflation is trending higher, measured and unmeasured.
  • President Trump is going to take over the Federal Reserve and do what he wants.

That is my elevator pitch on holding precious metals... Here is the key point: Gold isn't an investment; it's a hedge. And it's not a hedge on your portfolio. It's a hedge on your life. It's a hedge on this place turning into "Mad Max Beyond Thunderdome."

So if the price of gold goes up a lot, you might be happy, but you will probably be unhappy about political developments in this country, including your marginal tax rate, and lots of other things.

I'm not saying that we'll someday be reduced to a state of nature where people barter for cans of condensed pea soup with Silver Eagles. The more likely scenario is that things will mildly suck and the price of gold and silver will be a lot higher in value.

I spend most of my time thinking about how things can go wrong rather than how things can go right. That's how I'm wired... People buy insurance on their houses, cars and even themselves, but they won't buy it on their portfolios. Seems strange to me." ("Gold isn't necessarily an investment - it's life insurance," MarketWatch, 7/25/19.)

Silver Ready to "Roar" - Commerzbank

Commerzbank AG, a global banking and financial services company, wrote that silver remains a good value and is ready to rise to $18 per ounce by the end of the year.

"[O]ur call of the day from Commerzbank says a 'long-neglected' commodity has waked from a "deep slumber" and is ready to roar. Silver hit a 13-month high last week and marked its eighth gain in nine sessions on Wednesday...

"The commodity is "still relatively good value as compared with gold, which is why we expect the upswing to continue," Commerzbank analyst Carsten Fritsch, who bumped his year-end forecast to $18 an ounce, told clients in a note Thursday...

"He says investors likely woke up to silver's potential earlier this month - it hit the lowest level vis-à-vis gold since 1992. Money has been pouring into silver exchange-traded funds, while speculative financial investors have been betting on rising silver prices since mid-June, after bearish views from late May, Fritsch says. 'Silver is thus well on its way - like gold before - to freeing itself from a prolonged sideways trend,' said Fritsch...." ("This 'long-neglected' commodity is ready to roar, says Commerzbank" MarketWatch, 7/25/19; emphasis added.)

US Debt Ceiling is an Illusion - Hemke

Craig Hemke, editor and publisher of the TF Metals Report, explained the U.S. debt ceiling no longer limits the United States' ability to borrow money to pay its debts.

"Once upon a time, the deficit spending of the U.S. government was thought to be constrained by something called the "debt ceiling". That this notion still holds in the mainstream media is the subject of this post... This 'debt ceiling' notion created a dollar limit beyond which the government could not borrow. In the days prior to the Great Financial Crisis, the debates surrounding an increase of this borrowing and "debt ceiling" were largely ignored. Again, though, that was BEFORE The Great Financial Crisis.

"In the months following the Great Financial Crisis, the massive U.S. fiscal deficit was rising fast. Faced with a hard number debt ceiling, the politicians in Washington soon found themselves having to raise the ceiling every six months or so...Well, the American people soon took notice of the ongoing debacle and began asking questions... questions like: 'Wait a minute. Hold on just a second. Didn't you clowns in DC just raise the ceiling by half a billion dollars six months ago? And now you already need to raise it again? What the heck is going on down there? This spending is out of control!'

So, just as the American people were waking up to the magnitude of the fiscal and monetary disaster that their politicians had created, these same politicians simply changed the definition of the purported "debt ceiling". And so now, in 2019, what's touted as a hard "debt ceiling" is not a dollar-based limit by any stretch of the imagination. Instead, the U.S. "debt ceiling" is now simply a date on the calendar beyond which the U.S. treasury can no longer borrow money. (Original emphasis.)

And why does this matter? Because it reveals the complete lack of any fiscal restraint in Washington, DC. The American politicians will NEVER allow themselves to be constrained by fiscal responsibility, and in fact, the madness of what's called "Modern Monetary Theory" is what awaits us all in years to come. Human history shows that ALL unbacked paper currency regimes eventually devalue to zero...

"There is no "debt ceiling", and the lack of any fiscal restraint-not just in the United States, but globally-speeds the demise of the current monetary structure. Your best protection against this madness continues to be the accumulation of physical precious metal. Do not delay in creating, or adding to, your personal stack." ("The U.S. Debt Ceiling Illusion," SprottMoney, 7/23/19.)

Russia Buying Gold to "De-Dollarize" Reserves

Moscow based Sputnik News reported the Russian government has increased its gold purchases as part of its plan to "de-dollarise" its reserves.

"Moscow has been increasing the country's reserves of the precious metal in recent years selling off its US Treasury securities at the same time. Although Russia used to be one of the largest investors in US debt, its stock has now reached $12 billion, the lowest level since 2007... In June alone, Russia added 18 tonnes of the precious metal to its mountain of gold, keeping up with the recent efforts to de-dollarise its foreign exchange reserves...

"Increasing its bullion holdings, Russia is also decreasing its share of US Treasury securities... Moscow has previously criticised the US for 'abusing' the reserve status of its currency, warning that doing so could backfire. During the recent St. Petersburg International Economic Forum (SPIEF), Russian President Vladimir Putin slammed the US, noting that the dollar has become 'a tool for the issuing country to put pressure on the rest of the world', and argued that the global role of this currency should be reconsidered.

"Russia is one among several states promoting a shift from the dollar to national currencies in bilateral trade. The trend of abandoning the dollar has notably been seen in a recent report on the economies of the BRICS countries, which have reduced the use of the greenback in mutual trade by 20%." ("Russia's Gold Stockpiles Hit $100 Billion Amid Efforts to De-Dollarise Its Reserves," Sputnik News, 7/26/19; emphasis added.)

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