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Several Analysts Expect Higher Gold Prices

Release Date: 
Friday, October 25, 2013

Gold and Silver Prices

Gold prices posted solid gains this week fueled by several factors including a weak jobs report, a falling U.S. dollar, and increased physical demand in Asia. (“Gold Ends Higher, Hits 4-Week High, On Technical Buying, Deflating Greenback,” Kitco News 10/24/13.)  “Gold futures rose 2% on Tuesday, putting them on track for their highest close in nearly five weeks, as a disappointing jobs report spurred bets that the Federal Reserve’s stimulus measures aren’t going away any time soon.” (“Gold climbs 2% to trade near five-week high,” MarketWatch, 10/22/13)  Gold closed the week at $1,353.90, up $35.50. Silver rose $0.64, closing at $22.70.

Fund Manager Expects Higher Gold Prices

Brent Johnson, CEO of Santiago Capital, sees higher gold prices by the end of the year: “It wouldn't surprise me to be back at $1,500 or $1,550 by the end of the year…There's a very high correlation between the monetary base, the national debt and gold.  For the long-term picture, that's the main driver.  I do think the correction in gold is largely over.  I expect gold to go much higher even toward the end of the year, and on into next year."  (“Fund manager:  If you believe in math, buy gold!” CNBC, 10/24/13)

HSBC: Fundamentals Support Higher Gold Prices

In a note to clients, HSBC analyst Patrick Chidley discussed the factors supporting higher gold prices: “[W]e continue to believe the fundamentals are supportive of higher prices. China continues to report gold imports at very high levels (over 130 tonnes in the month of August from Hong Kong alone). Based on our belief that the pressure on gold price is temporary, due to continued strength in Chinese demand, continued strong Indian demand (despite recently ramped up government tariffs on gold imports), growing demand in other emerging markets countries, continued central bank purchases, a strong physical supply response coupled with a lack of new projects coming into production in the next few years, we believe the gold price will rebound in the next few months.  Hence, given the rebasing of gold equity prices to reflect the current gold price below USD1,300/oz, and HSBC’s view that gold can climb back above USD1,400/oz within a few months…”  (“Going for Gold: HSBC Upgrades Miners on Potential Precious Metal Rebound,” Barron’s, 10/21/13.)

Analysts See Higher Prices in November Due to Indian Festival Season

Analysts said the Indian festival season traditionally bolsters gold prices. Bank of America Merrill Lynch analyst Michael Jalonen said, “Looking ahead, history would indicate that November is usually a strong month (with an average monthly gain of 3.8% in November) for gold prices thanks to the wedding and festival season in India. Thus we believe that bullion could mount a modest rally to the $1,350-$1,400/oz range over the next month or so.”

Morgan Stanley’s Paretosh Misra ageed. “Indian festival season could provide a lift to gold…Traditionally, the Diwali festival (specifically, Dhanteras, the two days before Diwali) is the biggest gold buying period of the year in India. In the last 10 years, gold has risen an average 2.5% in the one month around Diwali.”  (“ANALYSTS AGREE: Gold Is Poised For A November Rally,” Business Insider, 10/21/13)

Russell on Gold, QE

Market veteran and publisher of the Dow Theory Letters, Richard Russell, wrote the Fed’s addiction to quantitative easing remains positive for gold. “The most interesting story at this time is gold…My feeling is that buying gold just off the current base will work out. And the risk of substantially lower prices is minimal. As I write, gold is in the process of enlarging its already impressive base…The Fed has placed us in a dangerous situation. At the slightest hint of cutting back, the markets go into a swoon. This means that the FED must continue with QE. On that basis we might as well play the FED's game…As for gold, I continue to think that this is a game of patience. The world is battling the forces of deflation and it's going to take an increasing amount of QE just to stand still.”  (“Richard’s Remarks,” Dow Theory Letters, 10/23/13)

U.S. Dollar in Trouble

Financial columnist Anthony Mirhaydari penned a commentary discussing the adverse effect of quantitative easing on the U.S. dollar. “[T]hanks to constant reassurances from Federal Reserve officials, and Tuesday’s weaker-than-expected payroll gains, it doesn't look like the ongoing $85 billion-a-month quantitative-easing (QE) stimulus is going to be slowed anytime soon. Wall Street increasingly doesn't expect the much-discussed and much-feared ‘taper’ until sometime in early 2014. And even that depends on Republicans and Democrats coming together by January to forge a long-term budget deal and prevent another shutdown showdown…

“But the casualty in all this has been the U.S. dollar, which has fallen out of its two-year trading range and now threatens to return to its 2011 lows…The bad news is that, if you remember, the dollar's 2011 plunge was associated with a surge of inflationary pressures as higher commodity prices and crude oil at $115 a barrel pinched consumers and forced the Federal Reserve to stop its QE2 bond-purchase stimulus. That inflationary surge — and the August 2011 debt-ceiling fight that followed — combined to slam the brakes on the global post-recession economic surge.”

Mirhaydari added, “For investors, the dollar's slide is creating opportunities in beaten down areas like precious metals and industrial metals.”  (“Kiss the dollar goodbye,” MarketWatch, 10/22/13)

Central Banks Continue Easy Monetary Policy

Several central banks joined the Federal Reserve’s policy of easy money. “The Bank of Canada’s dropping of language about the need for future interest-rate increases and today’s decisions by central banks in Norway, Sweden and the Philippines to leave their rates on hold unite them with counterparts in reinforcing rather than retracting loose monetary policy.”

In response to the banks’ decisions to keep interest rates low, Joachim Fels, co-chief global economist at Morgan Stanley, stated, “[w]e are at the cusp of another round of global monetary easing.”  Richard Gilhooly, an interest-rate strategist with TD Securities added, “[w]e are undoubtedly seeing these central bankers go wild…It’s not normal.”  (“Central Banks Drop Tightening Talk as Easy Money Goes On,” Bloomberg, 10/24/13)

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 a 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.

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