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WGC: Gold Improves Purchasing Power, Manages Risk

Release Date: 
Friday, November 1, 2013

Gold and Silver Prices

Gold and silver prices fell this week on a stronger dollar and the Federal Reserve’s announcement that tapering of its quantitative easing program remains on the table. The dollar gained support as investors speculated the European Central Bank may further lower interest rates to support the euro-zone economy. “The dollar ‘has been quite strong in recent sessions, and that has created some pressure on gold, said Vedant Mimani, lead portfolio manager of the Atyant Capital Global Opportunities Fund.” (“Gold drops toward $1,300 on dollar advance,” MarketWatch, 11/1/13.)

Gold closed the week at $1,316.80, down $37.10. Silver fell $0.73, closing at $21.97.

World Gold Council: Gold Improves Purchasing Power, Manages Risk

In its October Gold Investor report, the World Gold Council (WGC) details reasons to invest in gold.

“While there is abundant opinion about the rationale for holding gold or what measures should be used to assess its effectiveness, its role in a portfolio (eg, inflation protection, currency hedging, safe haven) and the measures used are quite often inadequately defined. We find that gold serves two main purposes: it protects – even improves – purchasing power and it helps manage risk…Our analysis shows that investors should use – and analyse – gold not in isolation but as a strategic component in their portfolios that…[p]rotects their ‘global’ purchasing power…[r]educes portfolio volatility…[m]inimises losses during periods of systemic market risk…[s]erves as a high-quality, liquid asset that can be used when the selling of other assets can be costly or cause large mark-to-market losses…”

“We summarise gold’s role as an inflation hedge as follows…[g]old, especially today, should be understood in the context of global inflation: an asset that responds to price pressures in developed markets as well as in emerging markets…Gold helps to preserve capital over the long run.”

The WGC’s Gold Investor went on to discuss gold as a critical diversifier to the world’s fiat currencies.

“For centuries, gold has played integral roles in the monetary system as a unit of exchange and a monetary anchor. While gold’s official role has diminished under the existing system of floating exchange rates, it has retained several currency characteristics. As such, gold acts as a natural hedge to the US dollar – the world’s reserve currency – and it is significantly influenced by it. Investors use gold as they seek the safety of supply-constrained hard assets, especially as governments implement inflationary policies. Central banks use gold no differently: they view it as an integral part of their foreign reserves, providing diversification and buffering geopolitical and sovereign risks. Looking forward, as the monetary system likely evolves into a multi-currency platform, gold will remain a key asset to balance the risks present in fiat currencies.”

“Gold is…used as a store of value and unit of exchange by investors and central bankers. This duality as a commodity and a monetary asset is what makes gold truly unique...It is widely recognised as a high-quality and liquid asset.  Few hard assets can be converted to local cash as easily as gold, even when it is in the form of jewellery…Gold is a virtually indestructible non-corrosive metal, making it an ideal vehicle for preserving wealth. In fact, it has served this function over the course of human civilisation, protecting against inflation and currency devaluations…” (“Gold Investor Volume 4,” World Gold Council, October 2013)

BofA Merrill Lynch Bullish on Gold

MacNeil Curry, Bank of America Merrill Lynch's Head of Global Technical Strategy, gave this analysis in a recent note to clients, "[w]e have changed our view on gold from bearish to bullish…We look for an ultimate break of the 1433 highs of Aug-28, with POTENTIAL for a push to 1500/1533 long term resistance.”  (“Gold looks scary good:  Bank of America Merrill Lynch,” Yahoo Finance, 10/31/13)

Federal Reserve Continues Asset Purchases

As expected, the Federal Reserve confirmed its plans to continue the current monthly asset purchase program following the Federal Open Market Committee meeting held this week.  “The Federal Reserve extended its support for a slowing U.S. economy on Wednesday, sounding a bit less optimistic about growth and saying it will keep buying $85 billion in bonds per month for the time being.  In announcing the widely expected decision, Fed officials nodded to weaker economic prospects due in part to a fiscal fight in Washington that shuttered much of the government for 16 days earlier this month.  The central bank noted that the recovery in the housing market had lost some steam and suggested some frustration at how slowly the labor market was healing.” (“Fed maintains strong stimulus as U.S. growth stumbles,” Reuters, 10/30/13.)

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.

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.

To receive free information package on gold and precious metals investing, call Goldline at 1-800-963-9798.