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Too Much Uncertainty In The World To Ignore Gold

Release Date: 
Friday, July 5, 2013

Gold and Silver Prices:

Despite a selloff on Friday, gold and silver prices ended higher this week on a mix of news including euro zone worries, slow growth in the U.S. services sector and unrest in Egypt. Gold closed at $1224.80, down $11.50. Silver dropped 0.76 to end the week at $19.00.

Too Much Uncertainty in World to Ignore Gold

Money managers and investment analysts Pamela and Mary Anne Aden (the “Aden Sisters”) wrote this week about gold and the “unhealthy” economic recovery. “[T]he world’s biggest central banks have been stimulating their economies, buying bonds and keeping interest rates near zero. This is all a huge attempt to spur economic growth and boost inflation in order to get things rolling again. The big challenge, however, is that this has not been a normal recovery. It’s been weak and lackluster, and totally dependent on the Fed and other central bank stimulus. In other words, the rebound following the massive 2008 financial crisis has not been a healthy one.”

The Aden Sisters also explained why investors should own gold. “The bottom line for gold is uncertainty. It continues to be the driving force because just about anything is possible. Nothing has really changed since many threw in the towel on gold’s 12 year old bull market. Do you really think the financial problems have gone away? Is the debt not a problem anymore, even though it continues to climb to considerable heights? Do you really think the Fed will end its money creation smoothly?... Will Japan?... Will the ECB? These are the big unknowns and they’re unlikely to end well.”

In the end, the Adens believe investors cannot ignore gold: “Gold is our insurance against financial bubbles and crashes. Many say the deflationary pressures that have taken hold are not a good environment for a rising gold price.  This, in part, is true. Gold generally tends to rise during inflationary times. But there’s just too much uncertainty in the world today to ignore gold.” (“Deflation Pulling More Than Inflation,” Kitco Commentary, 7/1/13.)

Gold Has Reached “Watershed;” Likely to Move Higher

Economist and financial newsletter editor Dennis Gartman told CNBC that gold has reached a “watershed” moment which signals the reversal of its recent fall. “I use the term ‘watershed’ very rarely. It's the term that I use when I'm making a major change in sentiment…And where do I think gold goes from here? Higher. Probably a great good deal higher. Probably several hundred dollars higher. Where am I wrong? I'm wrong at last Thursday's low. I think the risk/reward is probably to the downside $75, to the upside several hundred, maybe $300 or $400 higher, and I think the odds of success are far better than a coin toss. I'll take the trade." (“Gartman’s ‘Watershed’ Shift on Gold,” CNBC, 7/1/13.)

Global Economy in Shambles; Gold To Move “Violently” Upward

On the heels of Egypt’s political upheaval and oil’s rise above $100 per barrel, the Chief Investment Strategist for Sprott Asset Management LP, John Embry, said the gold market is poised for an “explosive” move higher in the coming months. “I think investors have to keep in mind that this has been the largest takedown in any single quarter in the history of the supposedly free-trading gold market, and it’s going to go back violently the other way.  We are only going to see the currency wars intensify in the future.  And because the global economy is in shambles and countries are competing to debase their currencies in order to grab a share of what is continuing to become a shrinking economic pie, this means more and more money creation.  This will lead to stagflation on steroids, and the stagflation of the 1970s created a 25-fold move in gold and a 38-fold move in silver.  The reality is that investors should expect at least those kinds of moves for gold and silver this time around if not more.” (“The Gold & Silver Takedown & A Major Geopolitical Eruption,” King World News, 7/2/13.)

Hathaway: Gold is at “Compelling Entry Point”

Relying upon a series of technical charts tracking various factors affecting gold, Tocqueville Asset Management’s John Hathaway  wrote that gold has been mispriced on the downside during the recent consolidation. As such, “[w]e believe the two year correction has created an unusually compelling entry point.  The market is positioned in a very similar manner to the 2008 bottom which was followed by substantial returns for the next three years…. We also believe that the macro economic rationale for gold has never been stronger.  Should the economy strengthen, inflation risks are high because of the political and practical challenge of shrinking the Fed balance sheet.  Should the economy continue to sputter or turn down, the possibility of a financial market downgrade of sovereign credit would result in politically intolerable high interest rates. Finally, severe pullbacks have typically set the stage for significant advances to new all-time highs.” (“John Hathaway - Five Absolutely Spectacular Gold Charts,” King World News, 7/1/13.)

Barisheff: The Case for $10,000 Gold

Nick Barisheff, CEO of Toronto’s Bullion Management Group, recently published a book boldly proclaiming that gold may rise to $10,000 per ounce within the next seven or eight years. The general thesis is that, when governments abandon the gold standard, they ultimately lose fiscal discipline and ends with “cheap money” fueling inflation.  “He believes we’re near the end of the third phase, when a steady diet of low rates causes housing and market bubbles to form and burst… The last two phases are the reckoning. Cheap money can’t stimulate any more growth and just creates inflation.” (“The case for $10,000-an-ounce gold,” thestar.com, 6/30/13.)

China Starts Gold and Silver Futures Night Trading

China's largest commodity exchange, Shanghai Futures Exchange, commenced night trading in gold and silver night futures, allowing traders and banks to trade futures from 9 pm to 2:30 am. The expanded trading is expected to help China have a greater influence gold and silver prices. "The purpose of night gold and silver trading is to help prices [on the Shanghai exchange] better connect with global prices, and to help achieve our goal of internationalizing our contracts," said the chairman at the Shanghai Futures Exchange. (“China to begin Gold, Silver futures night trading on July 5,” Scrapregister, 7/5/13.)

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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