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Gold Hits a Two-year Low on the New York Spot Market

Release Date: 
Friday, April 19, 2013

Gold and Silver Prices:

Gold fell below $1400 on the New York Spot Market to a two-year low in what some have described as “panicked” selling before retracing some of its losses by the end of the week. Silver prices also tumbled losing nearly 15% before inching higher on Friday.

John Hathaway, Portfolio Manager at Tocqueville Asset Management, explained why he believes the panicked selloff was motivated by “opportunistic players.”

“All in all, it appears to us that this gold sell off was made in America, based on an assessment of technical weakness by a large number of opportunistic players, and supported by dubious macroeconomic speculations. At the very least, a sharp rebound based on short covering and physical buying should be expected once the panic has run its course. The bigger consideration is whether the validity of the rationale for gold has changed.”(“Tocqueville Gold Strategy Update,” 4/15/13.)

The World Gold Council’s CEO echoed this view: “It has become increasingly clear over the course of the past week that the fall in the gold price was triggered by speculative traders operating in the futures markets. Their short-term view of generating a trading profit is in stark contrast to the views of long term investors in gold, as evidenced by the massive wave of physical gold buying that began over the weekend and accelerated following Monday's further decline. The surge in gold purchases is spanning markets from India and China to the US, Japan and Europe. Buyers are viewing this as an opportunity to purchase gold at prices not seen in the past couple of years.” (“Shortage of gold bars and coins in Dubai, says World Gold Council,” The Economic Times, 4/19/13.)

Gold ended the week at $1407.50, down $79.80. Silver closed at $23.39, down $2.56 for the week.

Physical Demand For Gold and Silver Remains Strong:

While there was a significant selloff by institutional investors and an outflow from precious metals ETFs, individual investors took advantage of lower prices to acquire physical gold and silver.

National mints reported significantly higher sales. “Since the dip in the price of gold we have seen increased demand for our gold bullion coins from the major coin markets,’ said Shane Bissett, the Royal Mint's director of bullion and commemorative coins… In the United States, sales of American Eagle gold for two days this week topped the volumes for the whole of March.” (“Slump in gold price releases years of pent-up retail demand,” Reuters, 4/18/13.)

Gold sales rose in India, the world’s largest consumer of physical gold. India celebrates a major gold-buying festival next month and the wedding season continues until early June. “Definitely, definitely, [there is] significant increase in footfalls [customers] and enquiries and purchases. It has the benefit of the festival coming next month and also the fact that wedding season is on, so it adds to the quantum of purchases being done,” reported the expert head for one of India’s largest jewelry chains. (“India Rushes to Buy Gold as Prices Fall,” Voice of America, 4/17/13.)

Sales of physical gold also increased in China, Japan, Europe and Dubai, analyst Ross Norman reported. “The Indian market was the first to respond as prices bottomed (no surprise there - they are always adept at spotting bargains), followed soon after by Dubai, Japan, Europe and now China. Sourcing small denomination bars is now proving difficult as stocks evaporate and dealers can expect to wait between four and six weeks for fresh stocks from the gold refiners. Premiums on bars, as one might expect, are rising fast.” (“Sharps Pixley: Physical Demand For Gold Picking Up Momentum,” Kitco News, 4/18/13.)

The reasons why investors are rushing to acquire physical gold was explained by Peter August, the chief executive of the Melbourne Mint. “'People are becoming a lot more savvy with prices going down, seeing this as being a buying opportunity. If this was a bubble as some people suggest, then you'd have people rushing out trying to sell at the same time. People remain concerned about counter-party risk in owning shares or bonds or even currencies, whereas gold has no counter-party risk. Gold is scarce and remains a safe haven…” (“Meltdown turns gold rush into a stampede,” The Sydney Morning Herald, 4/20/13.)

Europe Faces Depression; Fiscal Crisis May Take 10 Years to Cure

“’Depression.” isn’t the word usually used to describe the euro-zone economy, but it may become increasingly appropriate as hopes for a recovery give way to fears of an extended and destructive downturn that policy makers seem unable to halt,” writes MarketWatch. “Unemployment is at a record high, credit is going down, banks are failing…what do you call an economy like that?’ said Carl Weinberg, chief economist at Valhalla, N.Y.-based High Frequency Economics and an unabashed user of the ”D-word” to describe Europe’s economic situation.”  (“Europe faces threat of full-fledged depression,” 4/17/13.)

As Cyprus debates whether to proceed with the proposed bailout, several institutions warn of the euro zone’s continuing economic crises. The IMF stated the eurozone remains “the epicentre of potential risk” in the world, and “is endangering stability by dragging its feet on an EU banking union.” Saxo Bank’s chief economist accused EMU leaders of “dangerous complacency.” “Nothing they say is true. Reality has never been further away. It's scary,” he said. “We think the eurozone is in far worse shape than they realize. We will see contraction of 1pc this year but it could be as bad as 2pc.” Citigroup cut its forecasts for Europe’s Economic and Monetary Union, stating the EMU will shrink in 2013 and 2014, with a quasi-slump dragging on until 2017. (“Cyprus bail-out vote stirs fresh jitters as slump fears grow in Europe,” 4/18.13.)

Germany’s top central banker, Bundesbank President Jens Weidmann, warned the EU’s fiscal crisis may last ten years stating current quantitative easing from central banks only cures “the symptoms.” “A point that I think is important to make—perhaps less for my central-bank colleagues than for finance ministers—is that the medication monetary-policy makers administer only cures the symptoms, and that it comes with side effects and risks,” the banker told the Wall Street Journal. (“German Banker Warns Crisis Far From Over,” WJS, 4/17/13.)

Analyst Commentary:

John Hathaway, Portfolio Manager at Tocqueville Asset Management, updated his firm’s gold strategy guide where he explained why he believes investors should continue to own gold. “It is quite possible that all of the known bullish arguments had been expressed when gold peaked above $1900/oz. in 2011…We believe that crisis of 2008 was never resolved, only papered over with sovereign credit. It is our belief that another, perhaps more dire crisis, lies ahead, centering first on the credit of weaker sovereigns but ultimately drawing fire on the very strongest. We believe that a deflationary turn of events will rekindle the sentiment that public policy is impotent, that paper money is toast, and that private wealth must be conscripted in bail ins yet to come. A deflationary scare was good for gold (with a lag) in 2008, and it should be even better in the current environment, in our opinion.” (“Tocqueville Gold Strategy Update,” 4/15/13.)

Financial newsletter editor Peter Grandich believes his target forecast of $2,000 remains intact. “It won’t happen in a day or week or month, but after a few weeks and a couple of months of consolidation it will be viewed as a correction and an opportunity for people to get back on board…” (“A ‘classic opportunity’ to buy: Gold bugs refuse to be squashed,” Financial Post, 4/15/13.)

The president and gold analyst at Maison Placements Canada reaffirmed his gold forecast of $2,500 per ounce. “I remain steadfast, bullish…It’s going to take a little bit longer, given the technical damage done to it.” (“A ‘classic opportunity’ to buy: Gold bugs refuse to be squashed,” Financial Post, 4/15/13.)

Warning that the era of quantitative easing and loose monetary policy will lead to hyperinflation, Hinde Capital’s CFO, Mark Mahaffey, wrote, “The imminent (less than 2 years) arrival of very high inflation whether it be described as hyperinflation, only the history books will tell us later and with it the investor reaction to demand an inflationary premium on fixed income assets.  The potential for an interest rate rise so catastrophic it will bring the house down… If we increase the monetary base by another $20 trillion dollars hyperinflation will no doubt result. This is the current state of play and projected expansion.” (“Crisis, what crisis?” Hinde Capital, 4/15/13). Echoing these views in an interview with Bull Market Thinking, Mr. Mahaffey said, “One of these days I think gold will go to $5000, [but when it does]—nobody will own it.” (“Hinde Capital: “One of These Days I Think Gold Will Go To $5000—But When It Does, Nobody Will Own It” Bull Market Thinking, 4/18/13.)

The president of Adrian Day Asset Management observed the recent consolidation is comparable to previous corrections in the gold bull market. “One might recall, however, that the mid-cycle correction of the 1970s bull market was followed the second dramatic move that saw gold up eight-fold before topping out. Second, the fundamentals are still very positive for gold, in my view, particularly the ongoing global monetary ease.” (“Adrian Day: Gold Weakness May Be Long-Awaited Correction,” Kitco News, 4/16/13.)

Nick Barisheff, president and CEO of Bullion Management Group Inc., stated the fundamental continue to support gold prices. “The price of gold is generally, perfectly correlated to U.S. debt. The last time I looked, the U.S. debt didn’t stop growing, it’s accelerating… Now is not the time to bail. You don’t bail at the bottom. If you still own gold today, you sit on it… During conditions like this, you should be buying, not selling.” (“A ‘classic opportunity’ to buy: Gold bugs refuse to be squashed,” Financial Post, 4/15/13.)

Goldline’s Extend Price Guarantee Program Ends Monday

Goldline’s special 30-day Price Guarantee Program (“PGP”) on qualifying products such as the popular limited production U.S.-Australian WWII gold and silver bullion coins ends at 6:00 p.m. (PT) on Monday, April 22. With this special, Goldline clients who purchase over $10,000 in qualified gold and silver coins may call Goldline if the price of their coins falls within 30 days of purchase and reprice their order at the lower price.  Please review our Account Agreement or ask a Goldline Account Executive for full details and limitations.  

Goldline’s PGP is just part of the Goldline Difference. To learn more about the benefits of working with Goldline, an industry leader helping people buy gold and silver for more than fifty years, click here or call an Account Executives at 866-867-4466.



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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