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Analysts Say Gold May Go Higher

Release Date: 
Friday, June 28, 2013

Gold and Silver Prices:

Gold and silver prices saw another sell off this week as investors reacted to further comments from Fed officials suggesting a wind down of bond buying and potential higher interest rates. Gold closed at $1,236.30, down $63.30. Silver fell $0.46 to end the week at $19.76.

Gold Going Much Higher Says Two Analysts

Analyst and CEO of Sprott Asset Management Eric Sprott told listeners to a webcast this week that gold’s “great ride” is far from over. “I always look at two fundamentals: ‘Do we believe in zero interest rates?’ and ‘do we believe in printing money?’ and I haven’t found anyone who believes in it, and we all know we’re in a ponzi-type situation here where if we ever reverted to normal, the destruction of the financial system would be unbelievable. People will naturally go to gold; the demand exceeds the supply by a factor of two already, so I think the price of gold will go significantly higher.”

Speaking at the same webcast, professional investor and Chairman of Casey Research, Doug Casey, affirmed gold’s continuing role as a hedge in an unstable world. “I think we’re facing an economic catastrophe of gigantic proportions. In an environment like this I’m really not interested in holding paper, and frankly because everything’s over-priced I don’t want to try to second guess the market…I don’t look at [gold] as a particular underpriced asset, although I think it’s going a lot higher, because of fear in the market that’s going to evidence itself soon.” (“As gold tanks further, Eric Sprott says yellow metal will go "significantly higher,” Proactiveinvestors, 6/26/13.)

“Compelling Reasons” to Be Bullish On Gold

Mineweb’s The Gold Report interviewed forecaster and Chairman of the Longwave Group, Ian Gordon, regarding gold’s one day plunge in April. “There are compelling reasons to be bullish on gold particularly, simply because there is a real worldwide crisis in fiat money. The unfolding crisis is similar to the 1930s, when the whole monetary system collapsed. We're envisioning something quite similar to that collapse is now occurring. We can see that there's this huge move to gold, not only by countries like China and Russia and even the small "-stan" countries, but major investors are also taking up the physical metal because they can see this crisis unfolding.”

Based upon these fundamentals, Mr. Gordon believes gold will reach a new record high. Referring to an earlier forecast of $1800 gold within the next 12 months by Agnico-Eagle Mines CEO Sean Boyd, Mr. Gordon stated, “The demand for physical is going to grow dramatically. It's going to make the paper markets irrelevant. I'm not sure if it's going to be a year as Sean says, but it's going to be extremely strong and the move will be very dramatic once it starts. The old highs of $1,900/oz will be surpassed by a long shot over the medium to long term.” (“Who “murdered” the gold price? Ian Gordon,” Mineweb, 6/27/13.)

Prospects for Gold Remain “Very Strong”

In a commentary this week, financial planner and financial newsletter editor Michael Lombardi told investors why gold’s recent fall was a portent for higher prices. “The prospects for gold remain very strong in spite of the price decline. At the very core, what gold bullion essentially does is provide safety from uncertainty. The economic troubles we’ve had recently haven’t gone away—in fact, new troubles are emerging. The health of the global economy looks to be deteriorating…What gold bears don’t realize is that central banks in the global economy are still printing money…On top of all this, the central banks around the global economy are still purchasing gold bullion to diversify their reserves…Furthermore, the demand for gold is increasing among retail investors as well… In the midst of negativity about gold bullion, I see bullish signs and I maintain my stance on the precious metal.” (“Why the Tumble in Gold Prices Actually Predicts a Bullish Market,” Kitco Commentary, 6/25/13.)

West is Likely on the Road to Inflation

Forbes contributor Clem Chambers wrote this week that gold’s recent fall does not spell the “end of the story” for gold. To the contrary, Mr. Chambers advised investors that gold remains an important hedge for the inflationary times he sees on the horizon. “The West is most likely to take the road of inflation to reset its chronic debt woes and this will see gold at unprecedented levels. However, if the developed world takes the Japanese deflationary route to create massive debt to GDP ratios rather than cut back, then gold will not be a good bet… I do, however, believe in the inflation story. But do not forget gold is an insurance policy from financial disaster and monetary devaluation. This might seem like a good thing but insurance policies cost money and as such gold is as likely to carry a cost to hold.” (“Gold Has Crashed, What To Do Next,” Forbes, 6/25/13.)

Central Banks Continue to Buy Gold

Bloomberg reported that Russia and Kazakhstan added to their gold reserves for an eighth straight month in May. Turkey, Azerbaijan and the Kyrgyz Republic also purchased gold in May. “It’s really encouraging to see central banks continue to view current price levels as attractive,” an analyst at Australia & New Zealand Banking Group Ltd. told Bloomberg. “That’s going to be one of the underpinning things for gold in the long term.” (“Russia, Kazakhstan Join Turkey in Raising Gold Holdings in May,” Bloomberg, 6/25/13.)

U.S. Q1 GDP Revised Downward

At a time the Federal Reserve is proclaiming the U.S. economy is making material strides toward recovery, the Commerce Department announced that it was revising the first quarter GDP downward to a paltry 1.8% annual rate. The original estimate was 2.4%.

“Barclays economist Peter Newland said the revised first-quarter GDP estimate will make it difficult for the economy to grow by 2.3% to 2.6% this year, as the Fed forecast last week. ‘It paints a picture of an economy with clearly less growth momentum at the start of the year than previously suggested,’ he said.” (“First-Quarter GDP Growth Rate Revised Down to 1.8%,” WSJ, 6/26/13.)

Fed Officials Seek to Combat Rising Interest Rates

The equity and commodity markets were not the only casualties of the Fed’s comments on quantitative easing. Interest rates on long term treasuries rose by more than one point to 2.61% while mortgage rates rose to their highest levels in nearly two years. In response, two Fed officials stated that any Fed increase in long term interest rates would not be accelerated. “It is pretty obvious that the Fed was caught off guard by the market’s reaction given the lengths to which they have gone to reshape market expectations,” wrote the deputy U.S. chief economist at UBS Securities LLC. “The range of both speakers and outlets suggests that these comments are, if not coordinated, then at least part of a collective -- likely futile -- effort to re-mold the market’s view of the June FOMC press conference.” (“Fed Officials Intensify Effort to Curb Surge in Interest Rates,” Bloomberg, 6/28/13.)


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.

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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.

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