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Gold Rallies for Weekly Gain

Release Date: 
Friday, July 26, 2013

Gold and Silver Prices:

Gold prices rose higher this week, breaking through the $1,300 resistance level with silver following gold’s impressive gains. Gold finished the week up $37.10, closing at $1,334.80. Silver rose $0.46 to end the week at $20.09.

Gold Rallies Above $1300

Gold prices rose more than 3% on Monday to top $1300 per ounce on a weaker dollar and technical buying. “You've got technical momentum.  You have fund buying. You have physical need for gold in the forwards in Europe, and you have no willing sellers left because we had that selloff to below $1,200. Almost anyone who was a weak holder got out. On Thursday, there's expirations, and that encourages short covering,” said an RBC commodities analyst. (“Gold regains some luster, has best day of the year”, CNBC, 7/22/13)

Michael Cuggino, who manages $12 billion in assets for Permanent Portfolio Family of Funds, observed, “We are seeing some support for gold as Bernanke’s statements tell us that the Fed wants to see a visible improvement in economic conditions before they begin tapering.  The longer-term reasons for owning gold, like capital preservation, remain as easy money will continue to flow into the system.”  (Gold Bulls Bet Right as Prices Rally Most Since ’11:  Commodities”, Bloomberg, 7/22/13)

$3,000 Gold in Five Years—Xie

Writing for MarketWatch, economist Andy Xie explained why he expects gold prices to rise to $3,000 per ounce, or 230%, in the next five years.  “While the rising U.S. dollar keeps downward pressure on the price of gold, rising global uncertainties support its role as a safe haven. Further, gold pricing is shifting to the East from the West…The tension between where gold is priced and where demand is located is manifesting itself in two ways: first, gold shops in Asia have no physical gold to meet demand; and second, the price of gold set in Shanghai is consistently higher than in London or New York.  Physical gold is likely to flow from the West to the East due to the pricing gap. It is only a matter of time before the warehouses of London and New York are emptied”

“As the Bank of Japan targets 2% inflation, the Japanese have become a force in gold demand too. Looking beyond the shadow of the strong U.S. dollar, gold has a very bright future. I believe that the price of gold will top $3,000 per ounce in five years.”  (“Gold prices will top $3,000 per ounce in five years”, MarketWatch, 7/14/13)

China Projected to Be Top Gold Consumer

The World Gold Council announced that China is expected to overtake India as the largest gold consumer in 2013, acquiring a record 1,000 tonnes this year. "China will probably be the world's biggest gold consumer this year for the first time on an annual basis," the WGC's managing director for investment said. “That will be driven by both jewellery and investment demand. Jewellery will be the biggest overall demand segment, but investment will grow fastest.” (“Chinese gold demand could hit 1,000 T this year-WGC”, Reuters, 7/25/13.)

Detroit Bankruptcy Fallout

The Wall Street Journal discussed the potential for further city bankruptcies following Detroit’s decision to seek federal bankruptcy protection following its failed efforts to manage $18-20 billion debt. “While few municipalities are as economically depressed or dilapidated as Detroit, many have borrowed heavily, raised taxes and hollowed out services to pay retirement and debt obligations. Some like Detroit may soon decide that clipping bondholders and pensioners is a better option than to keep whacking taxpayers.”

The Journal notes the cities facing potential bankruptcy include Oakland, California, Philadelphia, and Chicago. But, “[s]maller cities may present an even greater default risk because they have lower borrowing limits, and retirement costs tend to consume a larger share of their operating budgets.”  (“After Detroit, Who's Next?”, Wall Street Journal, 7/21/13.)

Speculation Grows On Fed Chair’s Successor

As Mr. Bernanke’s term as Fed Chair nears its end (the term expires in January 2014), a number of articles focused this week on his likely successor. For now, the top runners appear to be President Obama’s former Treasury Secretary, Larry Summers, and current Fed Vice Chair Janet Yellen. Ms. Yellen is reportedly “a strong supporter of the easy money policies initiated by the Fed in the wake of the financial crisis.” Mr. Summers served as Treasury Secretary during the President’s first term and was the head of the president’s National Economic Council. (“Fed Chief Race Down To Two”, Fox Business, 7/25/13.)

In addition, Mr. Obama will have four other open seats to fill. “For the first time in his presidency, every member of the board will be an Obama appointee (though the president doesn't pick regional Fed presidents, who also rotate through positions on the Federal Open Market Committee, which makes monetary policy). That's about as clean a slate as one could have, and it suggests a different perspective on the race for Fed president…It will be the Barack Obama Fed -- no matter who gets the top job.” (“Yellen or Summers, It Will Be Obama's Fed”, Bloomberg, 7/25/13.)

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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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