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Ron Paul: Gold to "Infinity"

Release Date: 
Friday, June 21, 2013

Gold and Silver Prices:

Gold and silver prices fell significantly after the Fed signaled it would begin tapering its massive bond buying program later this year. Gold closed at $1,299.60, down $92.90. Silver fell $1.96 to end the week at $20.22.

Friday saw bargain hunters flood the physical gold market, moving prices above $1300 per ounce. “Physical demand was again aggressive yesterday, and overnight, in Europe as many investors continue to see the long-term benefits of maintaining gold as a portion of their portfolios," said the global trading director with Kitco Metals who reported volume increased more than 900% on Thursday. (“Gold Bounces Off Recent Lows,” WSJ, 6/21/13.)

“Sizeable” Chinese buying also supported gold prices according to the head of trading in precious metals and foreign exchange with MKS Capital. (“MKS Capital: Chinese Gold Buying Emerges After Thursday Sell-Off,” Kitco News, 6/21/13.)

Dollar Could Collapse, Gold to “Infinity”: Ron Paul

Former Congressman Ron Paul told CNBC that government and central bank policies may lead to self-destruction of the U.S. dollar and higher gold prices. “Markets do these types of things—they go up sharply, and sometimes they take a rest," Paul said. "I was never very good on short term, whether it's the stock market, or whatever. But if you look at the record of the value of the dollar since the Fed's been in existence, we have about a 2-cent dollar. And gold used to be $20 an ounce. So I'd say the record is rather clear on the side of commodity money…. Six thousand years of history shows that gold always retains value and paper always self-destructs…” Eventually, if we're not careful, [gold] will go to infinity, because the dollar will collapse totally…" (“Ron Paul: Gold Could Go to 'Infinity',” CNBC, 6/18/13.)

Gold Mining Production Not Sustainable at Current Prices

The drop in gold prices may affect long term supplies as the cost production exceeds gold’s price per ounce. “$1,300 is not a sustainable gold price,” said the managing director for investment bank Headwaters MB. “It’s a function of perspective and market perspective…If you’re looking at gold at a high of $1900 and a precipitous fall to $1300, that’s disaster-that is not a sustainable price. The reality is as long as you’re focusing on cost, having a longer term plan, gold is still an asset class that has tremendous upside.” (“Is It Sustainable To Mine Gold In This Current Price Environment?” Forbes, 6/14/13.)

HSBC reported similar conclusions. “Prices are now well below the top end of marginal costs for higher-cost and some small gold producers…At the very least, expansion plans are likely to be shelved and although larger producers may be able to struggle on and meet production schedules at these prices, it is unclear if smaller (producers) can keep output up should prices fall further or remain low for a sustained period. Also we suspect scrap processors and dealers will withhold material from the market in the hope of higher prices. Scrap is equivalent to 60% of mine supply and is the second biggest source of supply to the market. Eventually these factors may support bullion.” (“HSBC: Low Gold Prices Would Lead To Tighter Market,” Kitco News, 6/21/13.)

Fed: Economy Strengthening; Bond Program May Taper Off

Following the Federal Reserve’s Open Market Committee meeting, Chairman Bernanke announced on Wednesday the Fed may reduce the central bank’s massive bond buying program and potentially end its quantitative easing within one year. Despite Mr. Bernanke’s qualification that nothing was “predetermined” and the Fed’s ultimate decision rested on the health of the economy, the financial markets reacted negatively to Mr. Bernanke’s statements.

In addition to drops in gold and silver prices, the stock markets experienced steep drops both in the United States and abroad. “The Dow Jones Industrial Average was down about 290 points (nearly 2 percent) in mid-day trading Thursday. Stock prices in Europe and Asia were down even more – about 3 percent in Germany and Hong Kong, for example.” (“Stock markets shudder at prospect of 'easy money era' ending,” CSM, 6/20/13.)

One of the Fed’s voting members, James Ballard, who last week opined that “aggressive” quantitative easing may continue to support the economy, criticized the Fed’s statements as “inappropriately timed.” “Bullard's objection was in part because he didn't agree with the timing of that decision. He also wanted a stronger commitment from the Fed to keep inflation from falling too low. Prices have risen less than 1 percent over the past 12 months, according to the Fed's preferred price gauge. That's below the Fed's target.” (“Fed official criticizes announcement on bond buys Bernanke bond announcement 'inappropriately timed:' Fed's Bullard,” Chicago Tribune, 6/21/13.)

Jobless Claims Increase, Manufacturing Slows

The Labor Department reported on Thursday that the number of Americans filing new claims for unemployment benefits rose more than expected last week. The financial reporting company Markit's stated U.S. manufacturing growth slowed in June. "Slower growth in the goods-producing sector looks likely to have acted as a drag on the wider economy," said Markit’s chief economist. “Companies are certainly circumspect about any sustained revival of demand… [Employment is also suppressed due to] the need to boost productivity, especially with intensifying competition from overseas and in export markets." (“Jobless Claims Rise as Manufacturing Growth Slows,” CNBC, 6/20/13.)

 

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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