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Hedge Funds Bullish on Gold

Release Date: 
Friday, January 17, 2014

Gold and Silver Prices

Gold prices rallied on Friday after the release of weak U.S. economic data.  “Gold futures are higher Friday, getting a lift from short covering and some buying that emerged when a soft report on the U.S. housing market left traders wondering if the Federal Open Market Committee might be less aggressive tapering quantitative easing than previously thought.”  (“Gold Futures Lifted By Short Covering, U.S. Data,” Kitco News, 1/17/14)

Gold closed the week at $1,255.10, up $5.50. Silver prices moved up $0.15, closing at $20.42.

Hedge Funds Bullish on Gold

The Wall Street Journal reported this week on hedge fund sentiment towards gold, becoming increasingly positive. 

“Hedge funds including San Francisco's $3 billion Passport Capital have been buying the metal, which plunged 28% in 2013. Vermillion Asset Management LLC, a commodity-focused hedge-fund firm majority-owned by Carlyle Group CG -0.58% LP that manages almost $1 billion, expects next month to start its first dedicated metals fund that will include investments in gold and other metals, according to people familiar with the firm. The launch is partly to capitalize on gold's largest annual decline in 32 years, the people say.  Bullish gold positions held by speculators such as hedge funds hit their highest level in seven weeks, according to data from the Commodity Futures Trading Commission.”

“Gold continues to ‘provide good insurance against crisis, higher taxes and inflation risks,’ says John Brynjolfsson, who runs hedge fund Armored Wolf, which advises two outside funds of about $1 billion…Mr. Brynjolfsson cited continued gold buying from China and instability in the Middle East as reasons to stick to his firm's gold wagers.” (“Gold Bulls Put Last Year's Beating Behind Them,” Wall Street Journal, 1/13/14)

Gold Rally “Extremely Likely” in 2014

Steve Kaplan, CEO of TrueContrarian.com, told MarketWatch he sees a new gold rally.  “Since the ‘financial markets always do whatever rewards the fewest people, a powerful rally in 2014 is therefore extremely likely,’ Kaplan said, and almost everyone will be surprised when gold reaches a new, all-time high in late 2014 or early 2015.”

David Morgan, publisher of The Morgan Report added, “Gold will make back all of the losses of 2013 and achieve $1,700 per ounce.”  (“Gold contrarians say it’s time to start buying,” MarketWatch, 1/17/14)

Hathaway:  Add to Gold Positions

John Hathaway, Senior Managing Director for Tocqueville Asset Management wrote an editorial for King World News this week, describing his position on gold. 

“Despite the painful decline in gold and gold shares that persisted throughout the entire year, we believe that the fundamental case for both remains strong.  It seems to us that the correction has left the entire sector sold out and friendless.  As contrarians, our experience has been that attractive investment returns arise out of such circumstances.  We therefore encourage investors to maintain their commitment and wherever possible to add to positions.”

“At the current gold price, construction of new mines in most cases does not make sense.  Therefore, future mine supply is jeopardized without a substantial and sustained rise in the gold price.  Miners have reduced costs sharply and are therefore highly leveraged even to a modest rise in gold prices from here.  Managements seem more likely than ever to remain tight fisted on new capital commitments.”

“We believe that the resolution of the disconnect between paper and physical gold will be a dramatic upside repricing of the real thing.  Most important is the steady migration of physical gold bars held in Western vaults to China and other parts of Asia, where they seem unlikely to be returned, other than for exorbitant ransom.  The timing of a resolution so potentially cataclysmic is elusive.  It would be like counting the snowflakes necessary to trigger an avalanche.  The buildup of systemic risk is there for anyone to see, but to the investment consensus, it is preferable, and perhaps more profitable in the short run, to ignore.  A commitment to precious metals and related mining shares is an investment in the almost certain failure of the PhD-standard in central banking, as stated so eloquently by Jim Grant.  Based on our perception of markets, it seems to us that the downside risk is limited.  Based on our perception of fundamentals, it seems to us that the upside potential is substantial.”  (“Hathaway - Gold Price To Super-Spike As Physical Flees West,” King World News, 1/15/14)

Doody: Gold Moving Higher; Surprise Coming From China

Gold Stock Analysts’ John Doody was interviewed on Kitco’s “On the Spot” regarding gold’s prospects in the coming year. “I remained convinced gold is headed higher: two billion Chinese can’t be wrong. While we continue to fixate on the U.S. market for gold, that’s not the world market for gold where half of the gold ends up being bought in Asia. It’s only an anomaly that the price is set here in the western world. I think that’ll change over time…”

Mr. Doody also sees an upcoming move by China to become a world currency.  “I suspect there’s a surprise coming from China in April that is basically going to wake up about China’s desire to make the Yuan a world currency.  Gold, which we know is the basis for any strong currency, and that’s the reason I think the Chinese are accumulating gold at the central bank level.” (Gold Headed Higher, Big Surprise From China Coming: John Doody,” Kitco, 1/17/14)

China Now Holds Record U.S. Debt

China now holds a record level of U.S. debt.  “China’s holdings of U.S. Treasuries increased $12.2 billion to a record $1.317 trillion in November, data released on the Treasury Department’s website showed...China’s swelling foreign-exchange reserves, reported today to have reached a world record $3.82 trillion at the end of December, may sustain the nation’s appetite for U.S. debt. Capital inflows and intervention to limit gains in the yuan have contributed to China building up currency holdings that are a third of the global total.”  (“China’s Treasury Holdings Climb to Record in Government Data,” Bloomberg, 1/16/14)

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 an 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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