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Gold Remains Relevant as Portfolio “Insurance Policy”

Release Date: 
Friday, May 24, 2013

Gold and Silver Prices:

Gold prices were higher this week on the New York Spot Market, at one point moving above $1400 before ultimately closing at $1387.30, up $26.10. Silver remained range bound and closed at $22.49, up $0.13 for the week.

Fund Manager: Gold Remains Relevant as Portfolio “Insurance Policy”

The manager for a $1.3 billion precious metals fund told Bloomberg that gold plays the role of an “insurance policy” for a diversified portfolio. “As part of an overall diversified portfolio, gold does serve a role because some of these things are still real risks as we look forward over the next 12 months… When you’re at your best health, you’re feeling good, that’s the time when your insurance policies are actually the cheapest… [gold’s] been very volatile and painful on the way down but as a whole, a small allocation to gold as part of an overall portfolio still serves its purpose. Once you find out you’re sick it’s going to cost a lot more, it’s going to be a lot more expensive.” (“Gold Is Still Relevant as Insurance Policy, Franklin’s Land Says,” Bloomberg, 5/21/13.)

Gold’s Next Big Move is to the Upside

Stating it is “way too early” to declare the end of gold’s bull market, Heritage Capital’s Paul Schatz told Yahoo! Finance, “there are still a lot of constructive things going on with gold. You have an incredible situation in Japan which hasn’t been played out in gold yet, the Euro, they haven’t even begun to print money yet, so there’s still a pretty good tail wind for gold…The risk/reward [for gold] is definitely in your favor…The masses are always wrong at extremes… If you give it a little room I think the next big move in gold is to the upside.” (“Gold Skeptics Have Peaked but Gold Prices Haven’t: Paul Schatz,” Yahoo! Finance, 5/23/13.)

Wounded Bull Market Will Recover: The Aden Sisters

Money managers and investment analysts Pamela and Mary Anne Aden (often referred to as the “Aden Sisters”) analyzed gold’s recent fall. “During the last 12 years, gold rose without inflation, with a war on terror, during the worst financial crisis in decades, through an unprecedented debt build up and during years of economic sluggishness. This time period also saw the U.S. dollar decline amid growing doubts of its reserve currency status. And it’s been a time when many countries have protected themselves from uncertainty by buying the most gold in 50 years.  That’s because our present economic situation is nearly unparalleled in U.S. history… We are of the camp that the bull is wounded but it will recover.  It may take time to recoup and we’ll likely see more volatility before any kind of decent rise develops…Notice that our favorite indicator has fallen to an extreme low area…Most interesting is that it only went below -1 in two other extremes, in 2006 and in 2008, and in both cases it preceded strong upmoves in gold.” (“A Wounded Bull,” Kitco, 5/20/13.)

Monetary Policies, Inflation Will Support Gold

Two analysts offered their views that the global devaluation of currencies will ultimately proof catastrophic for economies and positive for gold. John Hathaway of Tocqueville Gold said: “The central banks in the U.S., Europe and Japan are all basically printing money to stimulate their economies... These monetary policies will turn out very badly, and the buying power of liquid assets like bank deposits will decline after inflation…there are potential flash points that could drive investors back to gold. With gold, you have to focus on the long term.”

Dan Denbow, USAA Precious Metals and Minerals, agreed: “In the short term, I expect more volatility, depending on what we’ll hear from central banks about policy issues, and inflation and growth… All the major central banks have accommodative monetary policies, and eventually that has to lead to inflation. They all think they can effectively manage the shift from supporting growth to reducing the risk of high inflation. But it has always proven difficult to get the timing right.” (“As gold prices slide, two experts weigh in,” Associated Press, 5/19/13.)

Silver May Rise 400%, Gold Triple, Says Market Veteran

Precious metals analysts and newsletter editor Ron Rosen told King World News that he sees dramatic increases in gold and silver prices. “This next leg of the gold bull market will see two important milestones in terms of price.  The first move will take gold to $2,800 in the next 12 months.  So we are talking about a roughly $1,500 move for gold in a short period of time.  The full advance of this particular leg will see gold hit $3,700 in just over two years.  This means the price of gold will close to triple during that time frame.”

“The bottom in silver just took place and it will have a large advance along the same timelines as gold, but the trip in between will be like flying in an airplane and hitting an air pocket.  It will take your breath away.  Silver should advance to $92 in about 10 months. So you are talking about a 400% advance in that metal in less than a year.  Past that you are looking at a $130 price for silver as gold hits $3,700.” (“Silver To Soar A Stunning 400% & Gold $1,500 In 10 Months,” King World News, 5/22/13.)

Federal Reserve Divided on Future Stimulus

The Federal Open Market Committee (FOMC) minutes for April/May were released on Wednesday, revealing an internal battle within the Fed regarding the future of quantitative easing. “It’s a mad house.  The FOMC appears utterly divided over key issues that seem to pull in different directions, giving arguments to both hawks and doves.  ‘One participant preferred to begin decreasing the rate of purchases immediately, while another participant preferred to add more monetary accommodation at the current meeting,’ read the release, in a perfect example of what the debate must have been like.” (“A Divided Fed: FOMC Minutes Reveal Hawks Calling For QE Taper In June,” Forbes, 5/22/13.)

However, Fed Chair Ben Bernancke told Congress that prematurely ending quantitative easing could harm the economy. “A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further…”  (“Bernanke Says Premature Tightening Would Endanger Recovery,” Bloomberg, 5/22/13.)

Japan’s Stock Market Suffers a “Mini-Crash”

Japan’s Nikkei index fell more than 7% on Wednesday in what was described as a mini-crash. “A reading on China manufacturing came in soft, sending shivers down the spines of investors already concerned that weak global growth will weaken further. U.S. investors were already on edge from the idea hatched a day earlier by Fed Chairman Ben Bernanke that the Fed was considering tapering its easy-money policies earlier than expected. (“Fleeting Japan scare proves it's all about the Fed,” USA Today, 5/23/13.)


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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