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“Real Buyers” Make the Case for Gold

Release Date: 
Friday, November 22, 2013

Gold and Silver Prices

Gold and silver prices fell this week following minutes from the Federal Open Market Committee (FOMC) which suggested QE tapering may occur sooner than anticipated.  “The U.S. Federal Reserve’s Open Market Committee minutes were deemed somewhat hawkish by the market place and that helped to sink the gold and silver markets. Several members of the committee said at their October meeting they could see the Fed tapering its $85 billion-a-month bond-buying program at ‘one of its next few meetings.’  The committee members also saw the U.S. economy growing at a ‘moderate’ pace.”  (“P.M. Kitco Roundup: Comex Gold Ends Lower, Spot Near Steady; Bears in Control,” Kitco News, 11/21/13)

Gold closed the week down $46.70, at $1,244.70. Silver prices fell $0.95, closing at $19.93.

“Real Buyers” Make the Case for Gold

Financial journalist and editor of, Jeff Reeves, told MarketWatch readers why he believes gold may be a bargain at current prices. “[J]udging by recent trends, it’s possible that gold has found a floor and that now is a decent time to buy…There’s risk no matter where you put your money right now. So here are some reasons the rewards from a buy into gold may outweigh those risks…”

“Demand for gold bars, coins and jewelry hit a record in the third quarter, according to the World Gold Council.  This is in large part driven by strong baseline demand from China and India — which collectively represent about 60% of gold demand, according to some calculations.  Furthermore, central bank demand continues to tick higher.

“Recently, prospective Federal Reserve Chairwoman Janet Yellen has made no bones about the importance of keeping the pedal down on loose monetary policy under her watch…That coupled, with Ben Bernanke backing off his hints of a ‘taper’ a few months back, has helped tamp down gold’s strength since summer.  Keep in mind that gold rallied from a low of under $1,200 at the end of June to $1,400 in August on the expectation that tighter monetary policy was on the way.  A move like that may be likely again for gold prices in early 2014.

“Hedge fund manager John Paulson, despite cutting his gold holdings in half, remains heavily invested in the precious metal. And investing icon George Soros revealed in his hedge fund’s latest filing that he has moved back into gold funds recently…There are a host of emotional arguments about gold — that it is ‘real’ money as opposed to fiat currency, that ‘paper gold’ investors are manipulating the market — but the presence of real buyers with a lot of cash to deploy is a real case for gold…But now that gold has been stuck between about $1,400 and $1,260 since the end of August, it may be worth considering a bargain buy now that gold prices are once again at the bottom of that range…I’m starting to take a good look at gold.”  (“4 reasons gold is poised for a comeback,” MarketWatch, 11/21/13.)

U.S. Economy in Trouble

Financial industry veteran and author, Murray T. Holland, penned a sobering commentary for CNBC about the faltering state of the U.S. economy.  “Congress has taken this country from financial stability five short years ago to the ninth worst debt-to-GDP ratio in the world. Most in Congress and many otherwise reasonable people walk around believing that a financial disaster cannot happen here, but it has happened here and will happen here again — but this time will be far worse…We have an unfunded pension liability to federal employees of over $7 trillion and this grows almost $1 trillion per year. Couple this with the $70 trillion or so negative cash flow in the future for social programs and the failure of the United States is assured. As John Smith so concisely framed it, ‘[t]here are two ways to enslave and conquer a nation: One is by the sword. The other is by debt.’…The way the financial crisis will happen is the same way it happens everywhere else: Interest expense gets you. When markets fear risk, interest rates rise and lending stops. The creditor country must then balance its budget. By this time, interest expense becomes a very large proportion of the budget, crowding out pensions, medical and Social Security. Not all of these can be paid as promised: Something has to be cut.

“But what does all this mean to you and me, and why so much concern in the financial community? The crisis that too much government debt creates is an economic and currency crisis. It is very similar to what happens when a person or business borrows too much debt: it enters the debt trap. As we have seen around the world recently, governments borrow themselves into the debt trap without a second thought, despite warnings from their own bankers, other countries and other central bankers…The only ‘American’ way out is how we got out of the World War II debt: Balance the budget and grow GDP at 2 to 3 percent for 30 years and we can get back to the debt-to-GDP ratio we had in 2008. This country needs courageous active citizens to become leaders in their own world by educating everyone they know — at school, at work and socially — as to the events that are going to unfold here on our own soil.” (“Washington fiddles while the economy burns,” CNBC, 11/17/13.)       

Quantitative Easing Could Continue:  Bernanke, Lockhart

Outgoing Federal Reserve Chairman, Ben Bernanke gave a speech before the National Economists Club indicating the current state of the economy may require a continuation of current monetary policy. 

"The economy has made significant progress since the depths of the recession…However, we are still far from where we would like to be, and, consequently, it may be some time before monetary policy returns to more normal settings…I agree with the sentiment, expressed by my colleague Janet Yellen at her testimony last week, that the surest path to a more normal approach to monetary policy is to do all we can today to promote a more robust recovery."

"In response to a financial crisis and a deep recession, the Fed's monetary policy communications have proved far more important and have evolved in different ways than I would have envisioned eight years ago…Communication about policy is likely to remain a central element of the Federal Reserve's efforts to achieve its policy goals." (“Bernanke:  It ‘May Be Some Time” Before Monetary Policy Returns To Normal,” Business Insider, 11/19/13)

On Friday, Atlanta Fed President Dennis Lockhart echoed Bernanke’s sentiment in an interview with CNBC, "We are going to remain very accommodative for quite some time, in all likelihood a number of years."  (“Fed will remain very accommodative for years: Fed's Lockhart,” CNBC, 11/22/13)

Goldline’s Express IRA Program

Many Goldline clients choose to include precious metals as part of their retirement planning especially during times of economic crisis and uncertainty.* Goldline’s Express IRA allows clients to acquire precious metals on their schedule; they no longer have to wait for your self-directed IRA to be funded before getting started.

Goldline's Express IRA not only provides clients with the ability to diversify their IRA on an expedited basis, clients can also qualify for Goldline's ground-breaking Two-Way Price Guarantee Program when they acquire $10,000 or more of our exclusive bullion coins.  When a Express IRA purchase qualifies for Goldline's Two-Way Price Guarantee Program, clients are protected on short-term upside and downside market movement: they can either call to reprice their coins if the selling price falls (up to a maximum of 28 days depending on the size of the purchase) or, if the selling price of the coins increase during the qualifying period, clients can call Goldline to acquire additional coins at the original selling price.

Goldline provides a wrap-up of the week's precious metals news along with important commentary on the American Advisor Week in Review audio program. Click here to listen.

*Federal IRA tax laws are complex and may change from year to year. Goldline believes it is appropriate to have 5%-20% of retirement portfolio allocated to precious metals. Other individuals and institutions may recommend different percentages. As with any investment, you should consult your tax advisor before making a decision regarding precious metals IRA investments.

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

You should review Goldine's Account Agreement along with our risk disclosure booklet, Coin Facts for Investors and Collectors to Consider ®, prior to making your purchase. Goldline has a spread or price difference between our selling price, called the "ask", and our buy-back price, called the "bid". That spread varies depending on coin or bar you acquire. Spreads on 1 oz bullion coins, 90% silver dimes and quarters, and one ounce and larger bullion bars are 13%. All other coins have a spread of 28%. There is also a 1% liquidation fee when you sell your coins back to Goldline. The market must go up enough to overcome this spread before an actual profit is achieved. Precious metals and rare coins can increase or decrease in value. Past performance does not guarantee future results. Coins are a long-term, three- to five-year, preferably five- to ten-year investment. We believe precious metals are suitable for 5% to 20% of the average investment portfolio though others may recommend a different percentage.

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