Gold inks best week in a month as Credit Suisse upgrades forecast to $1,350
Posted onGold finished its best week in about a month, holding above $1,240 and logging a roughly 1.7% gain after some top Federal Reserve officials continued to preach a dovish message.
Speaking Friday, New York Fed President William Dudley said that a gradual approach to further interest-rate increases is warranted. Although the downside risks have diminished since earlier in the year, I still judge the balance of risks to my inflation and growth outlooks to be tilted slightly to the downside, he said.
And on Thursday, at a conclave that saw the current and previous three Fed chiefs incumbent Janet Yellen along with predecessors Ben Bernanke, Alan Greenspan, and Paul Volcker all on one stage for the first time ever, Greenspan reiterated concerns about U.S. economic vulnerabilities.
The major problem that exists is essentially the issue that productivity growth over pretty much the spectrum of all economies has been under 1% a year for the last five years, he said. Meanwhile, Yellen denied the U.S. economy is in a bubble but said its suffering from a drag from the global economy.
Tidal wave of default feared: However, perhaps Yellen is in denial as one of the worst corporate earnings season in recent memory gets under way, and first-quarter GDP estimates are well under 1% from numerous analysts. For anyone seeking a harsh dose of reality, look no further than Societe Generale strategist Albert Edwards, who sees a U.S. recession looming.
Whole economy profits never normally fall this deeply without a recession unfolding, he argued. And with the U.S. corporate sector up to its eyes in debt, the one asset class to be avoided even more so than the ridiculously overvalued equity market is U.S. corporate debt. The economy will surely be swept away by a tidal wave of corporate default.
Trader bets $2 million on gold: Given this uncertainty, gold remains a go-to asset. And some investors are putting their money where their mouths are. CNBC reported Friday that one trader bet more than $2 million that the gold could rally 10% in one month. The trader purchased 10,000 July 125-strike calls for $2.29. Since each call option accounts for 100 shares, this is a $2 million bet that the GLDwill rise above $127.30 by July expiration.
Meanwhile, another major investment bank has revised its price targets now that gold is showing little inclination to yield much of its roughly 16% gain so far this year.
Bank lifts 2016 price average by 10%: According to metals analyst Lawrie Williams, Credit Suisse has lifted its price target to as high as $1,350 for the first quarter of 2017. It also sees the metal averaging $1,270 this year (up 10% from its previous forecast) and $1,313 in 2017.
Its silver forecast also has increased, rising 6% to $16.26 for this year and 3% to $16.50 for 2017.
The bank cited declining real interest rates, a slower-going Fed, a weaker dollar, continuing ETF inflows, and ongoing central-bank purchases as bullish factors.
Range expansion signals bear is over: Meanwhile, market analyst Jesse Felder cited famed billionaire investor Paul Tudor Jones in arguing that the bear market for gold is over.
When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of that expansion, Jones wrote. And Felder sees golds current chart pattern as another such range expansion, only this time it is bullish rather than bearish. This doesnt mean that gold will immediately continue higher but it does suggest that the recent rally is probably more than just a flash in the pan.
And Forbes contributor Tim Treadgold cited billionaire Warren Buffetts investing philosophy of buying valuable assets when the prices are down. For Treadgold, central banks have been doing just that, buying 483 tons of gold in 2015, and such interest from those big players bodes well for golds future.
If a big investor in any market is a net buyer, then the trend is more likely to be up than down, and in gold there is no bigger force than the worlds central banks, he wrote.
1799 Capped Bust $10 gold coin targets $500,000
Posted onIn terms of headline-grabbing seven-figure sales, the rare coin market has been relatively quiet since the third sale of the D. Brent Pogue Collection in February, which saw a 1793 Chain Cent almost top the $1 million mark.
Even Blanchard and Company senior portfolio director Douglas LePre didn’t see much to buy at the American Numismatic Associations National Money Show in March. And another coin dealer lamented the lack of available top-quality inventory in an April article titled “Why can’t I find coins to buy at a coin show?”
However, some coin sales are making noise. At a recent show in Baltimore, at least three coins topped the six-figure mark.
A 1795 Draped Bust Dollar certified at MS63+ PCGS grabbed $117,500. And an 1808 Capped Bust $2.50 gold piece certified at MS61 PCGS brought in $223,250. And finally, a 1799 Capped Bust $10 gold coin, graded at MS66 PCGS with green CAC sticker, made a serious run at the half-million mark by hitting $493,500.
However, the best way to get an inside line to the most coveted, rarest, and most highly graded coins is not by attending shows, but rather establishing a relationship with Blanchard and Company‘s knowledgeable investment professionals. Thanks to our close collaboration with renowned numismatist and CAC founder John Albanese, Blanchard can offer its clients the top coins they’re looking for with a simple phone call alerting them of new inventory. Call us today to establish a productive and profitable relationship with Blanchard’s experts for all your numismatic needs.
Fed stays cautious as worst earnings season since the Great Recession looms
Posted onGlobal risks those two words encapsulated the gist of the minutes from the Federal Reserves March 15-16 meeting. And that’s ironic, given that U.S. GDP estimates continue to tumble toward zero, suggesting clear and present dangers to the domestic economy.
It was at this March meeting that the central bank left interest rates unchanged and also reduced its likely target number of 2016 rate hikes from four to two. That caution was reflected in the new minutes, which found that several Fed officials noted their concern that raising the target range as soon as April would signal a sense of urgency they did not think appropriate. In contrast, only some Fed policymakers backed raising rates at the next meeting, set for April 26-27.
Ongoing downside risks seen: Overseas risks were the major rationale for the Feds ongoing caution. Several participants expressed the view that the underlying factors abroad that led to a sharp, though temporary, deterioration in global financial conditions earlier this year had not been fully resolved and thus posed ongoing downside risks, the minutes read.
Although the focus was clearly on international economic developments after all, the word global was used about 22 times throughout the minutes the Fed document stressed that bankers are watching not only domestic economic releases, but also information about developments abroad and changes in financial conditions.
Earnings disaster could derail June hike: The takeaway from the minutes is surprise, surprise that the Fed will continue its data-dependent stance and more likely than not will not raise rates in April. The June meeting, rather, is what Wall Street is now focusing on. But what will happen between now and then that more than likely will see the Fed kicking the can even further down the road? First-quarter earnings season, that’s what.
CNN went so far as to call the upcoming earnings season the worst since the Great Recession.
Wall Street is bracing for a 7.9% plunge in first-quarter profits in S&P 500 companies as earnings season kicks off next week, CNN reported. That would be the deepest decline since 2009, according to S&P Global Market Intelligence. The culprits? A strong dollar, falling oil prices, and slow global growth. The energy sector is expected to fare the worst.
Fragile apple cart of stocks: This earnings season does have the potential of upsetting a rather fragile apple cart, independent strategist Peter Kenny warned of recent stock gains.
Barrons added: Bottom-up expectations have grown increasingly pessimistic over the past three months, to the point where Wall Street now sees corporate profits slumping for a fourth straight quarter for the first time since the financial crisis. Barrons cited a FactSet estimate of an even worse 8.5% drop in S&P 500 company earnings from the previous quarter.
If a surprise rate hike were to occur in April or June, expect stocks to surrender their tenuous gains. After all, we’ve already seen that even the tiniest of interest rate hikes has gone hand in hand with a huge drop in the markets, noted Robert Murphy of The Mises Institute.
Expert sees $10,000 gold: Ironically, stocks stayed largely in the green Wednesday while gold hung on to mild losses after Tuesdays surge of more than 1%. But investors need gold now more than ever, said Jim Rickards of West Shore Funds in a new Bloomberg interview.
Right now with the Fed dovishness, its going to lead to a weaker dollar. The dollars at a 10-year high on the index. I would expect a weaker dollar, stronger euro, stronger yen, but gold should also go up as the dollar weakens.
Given the vulnerabilities in the stock market, investors need hard assets, not equities alone or even gold ETFs, Rickards said. Stock-market wealth is all electrons, he noted.
If you dont have some assets (that are) tangible, I recommend gold for 10%, real estate, fine art, silver, there are other asset classes, but you have to have something physical or it can all be wiped out, he said, citing the recent massive cybertheft experienced by Bangladesh as well as several New York Stock Exchange closures throughout history.
Rickards maintained his longstanding call that gold will eventually be valued at $10,000 under a global reset of the world financial system under a new gold standard. What does the price of gold have to be to support world trade, world commerce, and the world money supply? Its eighth-grade math; its not difficult. That’s where gold will end up when confidence in paper money is lost during the next major financial crisis. But until then, investors need gold to weather the potentially rocky earnings season ahead.
Gold bolts higher after U.S. GDP estimate crashes closer to zero
Posted onGold once again defied the bears by bouncing back Tuesday on new signs that the U.S. economy is teetering on the edge of a recession.
An early slide in oil prices also helped pressure stocks and sparked fresh flights into gold, especially after Federal Reserve chief Janet Yellen confirmed last week that earnings expectations have declined.
Investors are taking off riskier assets in the S&P 500 and other equities, and looking to come back into safety like gold, RJO Futures strategist Phil Streible told Bloomberg. Gold looks like a nice place to park some money.
Up more than 1%, gold was trading near $1,228 by early afternoon, while silver also had gained about 1.3% to hit $15.06.
Trade deficit helps kill GDP: The catalyst for renewed recession fears in the U.S. was the trade deficit for February, which rose to six-month highs, hitting $47.1 billion, the Commerce Department said Tuesday.
As a result of that widening deficit, U.S. GDP estimates took another hit. The Atlanta Federal Reserve slashed its growth forecast from 0.7% to 0.4%, citing the deficit as well as yesterday morning’s light vehicle sales release from the U.S. Bureau of Economic Analysis and the manufacturing report from the U.S. Bureau of the Census.
Thus, growth is inching closer toward negativity. A separate CNBC/Moody’s Analytics measure put growth at just a slightly better 0.5%, but the network conceded that given the average, and substantial, revisions to government GDP data, that 0.5% could easily turn into a negative number.
Recession never appears obvious: To those who would say there is no evidence of a current recession, Lance Roberts of RealInvestmentAdvice.com made the observation that on numerous prior occasions in U.S. history, growth looked positive just before the official downturn occurred.
Robert cited these figures:
January, 1980: 1.43%
July, 1981: 4.39%
July, 1990: 1.73%
March, 2001: 2.30%
December, 2007: 1.87%
Each of the dates above show the growth rate of the economy immediately prior to the onset of a recession, he wrote. You will remember that during the entirety of 2007, the majority of the media, analyst and economic community were proclaiming continued economic growth into the foreseeable future as there was no sign of recession.
Risks increasing, IMF says: Although International Monetary Fund chief Christine Lagarde denied Tuesday that the world is on the verge of another financial crisis, she took the opportunity to lament the global slowdown in growth.
We have growth; we are not in a crisis, she said in Germany. The not-so-good news is that the recovery remains too slow, too fragile, and risks to its durability are increasing.
The outlook is clouded by weak growth, no new jobs, no high inflation, still high debt all those things that should be low and that are high, she added.
Lagarde seemed to indicate that more potential money printing is the answer, praising the effectiveness of negative interest rates in some struggling economies. We see the recent introduction of negative interest rates by the ECB and Bank of Japan though not without side effects that warrant vigilance as net positives in current circumstances, she said.
Gold to $1,350, says analyst: Negative rates, particularly if they spread to even more countries, are great news for hard assets like gold and silver bullion and rare coins. Real assets such as land, property, commodities especially precious metals and collectibles would be favored, noted Satyajit Das.
Given the global growth malaise, its hard to imagine interest rates rising significantly anywhere soon. George Milling-Stanley of State Street Global Advisors recently addressed the pullback in the yellow metal, saying now is the time to stick with gold. Its quite possible that its heading to $1,350, he said.
Im not necessarily convinced that were necessarily going to get another pullback to $1,200 or below, he said of gold. Weve already had a little pullback from what, the $1,270 area was the best we hit in the first quarter. Weve had a decent pullback from that. Frankly, I dont think I would risk waiting (to buy). The dollar is looking a little stronger now, but its not looking like the monolith that it had been for the last four or five years and that had been putting pressure on gold. Similarly with equities; I know theyre back and positive territory for the first quarter, but theyre still looking very volatile compared to where they were. Nobody is talking about 10%-15% growth in equities either. So I think thats a pretty favorable climate for gold.
Gold pays off big-time for Russias central bank
Posted onRussia solidified its status as the biggest buyer of gold among the worlds central banks with a 356,000-oz. purchase of bullion in February, according to the business daily Vedomosti.
And Moscows massive bet on the yellow metal has paid off: Golds biggest quarterly surge since 1986 has all but erased losses the Bank of Russia suffered by mounting a rescue of the ruble more than a year ago, Bloomberg reported. Policy makers have instead used 13 months of gold purchases to take reserves over $380 billion for the first time since January 2015.
Russias purchases are all part of an ongoing trend in which central banks have amassed the second-highest annual total of gold bullion since the end of the gold standard, the Financial Times reported.
The newspaper was summarizing the findings of the latest annual Gold Survey from precious-metals analytical firm GFMS, which calculated that net purchases by central banks in 2015 hit 483 metric tons. Russia alone was responsible for 206 tons as it looks to diversify away from the U.S. dollar due to tensions with the West.
Meanwhile, China added 104 tons of its own in the second half of 2015. Russia and China are real standouts, GFMS analyst Ross Strachan noted.
The tide turned around 2010 thats when the roughly two-decade trend of central banks selling gold reversed and those same institutions became net buyers as a means of protecting themselves against rampant money printing by the Federal Reserve and other top banks.
The central-bank buying trend shows no sign of abating and should continue to offer support to the gold price.
Gold sales jump 45% at Austrian Mint thanks to negative rates
Posted onIn the wake of a new analysis from the World Gold Council suggesting that golds price performance can double under negative interest rates comes a Bloomberg report showing a major mints bullion sales are booming. One reason given: negative rates.
Austria’s mint, Muenze Oesterreich AG, which makes the popular gold Philharmonic coins, is reporting that its 2015 sales of gold bars and coins have jumped 45% versus 2014s totals, with 1.32 million ounces moved. Its silver bars and coins did even better, charting a 58.7% rise from 4.6 million ounces in 2014 to 7.3 million last year.
Mint official Andrea Lang cited the European Central Banks negative-interest-rate policy for the sales surge. Interest rates are negative at the moment and people don’t see any benefit of keeping their money anywhere, but at the same time they feel a little bit concerned about the future. They want to invest; they want to have a safe haven for their money, she said Friday.
And in the wake of news that the Perth Mint logged record profits in the second half of 2015, the Australian facility also says its March gold sales rose 29% to 47,948 ounces versus a month earlier.
The U.S. Mint also is seeing robust sales. Although its month-over-month totals for gold American Eagle and gold American Buffalo coins have dipped, gold Eagle sales rose 68.2% in first-quarter 2016 versus the same quarter in 2015. And gold Buffalo sales are 7.1% higher in the first quarter of this year versus the first quarter of 2015.
Meanwhile, silver American Eagle sales are chugging along at a record pace, with more than 14.9 million ounces sold. That’s almost 24% higher than sales for the equivalent period a year ago and 2015 was a record year for silver Eagle sales!
Trump warns of massive recession, but real threat may be 1970s-style stagflation
Posted onRepublican presidential contender Donald Trump grabbed headlines again over the weekend by reiterating one of his campaigns central claims: that the U.S. is in a recession.
Trump may have a point: The Atlanta Federal Reserves GDPNow forecasting tool has now fallen below 1%, to just 0.7%. Though not yet negative, U.S. growth seems to be losing momentum.
I think were sitting on an economic bubble. A financial bubble, Trump told The Washington Post. Were not at 5% unemployment. Were at a number thats probably into the 20s if you look at the real number. That was a number that was devised, statistically devised to make politicians and in particular presidents look good. And I wouldnt be getting the kind of massive crowds that Im getting if the number was a real number.
Im talking about a bubble where you go into a very massive recession. Hopefully not worse than that, but a very massive recession.
Hollow pockets all over economy: Trumps claims brought out the usual naysayer economists in their rose-colored glasses, but the latter are ignoring a crucial point: Though U.S. GDP hasnt fallen into negative territory for the two straight quarters needed to qualify as a true recession, millions of Americans nevertheless feel as if they are living in one.
Trumps not talking to economists, said Yahoo! Finance columnist Rick Newman. Hes talking to a lot of people who feel they have been in a massive recession for years, I mean 15, 20 years. Thats who is showing up to Donald Trumps rallies by and large, and they have reasons to be angry, by and large. We do know that incomes have stagnated for a lot of people. We do know that many of the better-paying blue-collar or middle-income jobs we used to have are no longer here. And when you look at the aggregate data on the U.S. economy, you see growth; you see the economys doing OK, but there are big hollow pockets in the U.S. economy.
And to see those hollow pockets, look no further than last Fridays nonfarm-payrolls report. Although 215,000 positions purportedly were created in March, the unemployment rate ticked up to 5%, and The Wall Street Journal reported that U.S. companies have announced the most first-quarter layoffs since 2009, citing the latest Challenger Gray data.
29,000 factory jobs lost: And a closer look at the Labor Department report itself reveals that the headline numbers are a rickety faade:
29,000 manufacturing jobs were lost in March, along with 12,000 in mining, only to be replaced by record gains in retail, food services, and drinking establishments, or typically low-paying service-industry jobs.
More than 93 million Americans remain out of the labor force. Although the participation rate improved in March, the number of Americans who have given up looking for work is still higher than a year ago.
Moreover, the newly created jobs are not the type that can sustain the American Dream or get deeply indebted college students out from their parents basements. Circumstantial evidence in the latest U.S. jobs report suggests many of these newly employed workers have found part-time work with mediocre pay, MarketWatch said of the payrolls report.
Indeed, the U.S. manufacturing sector remains in a deep funk, with factory orders down 1.7% in February.
Another dismal earnings season ahead: And Trump could be right on another front: the equities bubble. The stock market could be about to get a huge wakeup call in the coming weeks, when corporate-earnings reporting season begins.
Nearly one-fifth of companies on the S&P 500 index expect to fall short of Wall Street estimates in what promises to be one of the most negative earnings seasons in a decade, MarketWatch reported.
With 94 companies already issuing negative quarterly outlooks, thats the second-highest number since tracking began.
And even worse, this will be the fourth straight negative quarter for earnings, with a decline of 8.7% projected, according to one estimate.
How much can the stock market rally in the face of the reality that earnings expectations have been steadily reduced? asked the Financial Times on March 25.
Stagflation leaving tracks across U.S.: With signs of inflation starting to tick up amid this low-growth environment, some economists are beginning to utter the S word: stagflation.
During the last year, as the economy has returned closer to full employment, the core cost structure of the U.S. economy has risen more aggressively and more broadly than ever before in this recovery, Jim Paulsen of Wells Capital Management told clients. While the U.S. is not facing runaway inflation, the concept of stagflation (i.e., rising inflation rates combined with slower real economic activity) has become much more noticeable.
Overall, for the first time in this recovery, a broad and significant rise in core economic costs is slowing job creation, real consumer spending and profitability, Paulsen said. In other words, stagflation is leaving tracks across the entire (economy).
Stagflation last reared its ugly head in the 1970s and coincided with golds run-up to its then-all-time high above $800. Bank of America has issued a report saying that gold is one asset that can thrive during stagflation, and other analysts have concurred.
Stagflation is the toughest investment regime, composed of inflation and economic stagnation, Acernis Capital CEO Avner Mandelman wrote in Canadas Globe and Mail newspaper earlier this year. The last time we saw this was in the late 1970s. And its coming again. In such a period, one of the only investments that appreciates is gold.
Gold and Negative Interest Rates: Protect Your Wealth From the Latest Central-Bank Stickup
Posted onGold expert Jim Rickards the author of several books including Currency Wars, The Death of Money, and The New Case for Gold recently penned a Q&A, and a Blanchard and Company client reacted with a great response. The article was about the amount of money that the Federal Reserve has stolen from American savers, which is approaching $8 billion, according to a recent study by NerdWallet.
Here is the Q&A:
How much did the Fed steal from U.S. savers? $7.5 billion and still counting. When the Federal Reserve keeps interest rates close to zero, who wins and who loses?
The losers are savers like you and me who keep some portion of their assets in the bank.
The winners are the banks that get to use our money for free and make leveraged investments in safe Treasury notes. This homegrown carry trade can produce 15% returns on equity for the banks at our expense. Artificially low interest rates are a case of stealing from savers and transferring the profits to the banks. Its like a bank robbery in reverse, where the bank robs you!
Relative to normal interest rates at this stage of a business cycle, savers have lost over $7.5 billion in interest due to the Feds policies. Some estimates put the losses much higher.
Here’s what a Blanchard client said upon reading the above: Wait until they go negative!
Negative rates seem to be popping up all over the globe as central banks struggle just to keep their respective economies stagnant, much less growing. Most people can’t imagine negative rates happening in the United States, but the Fed is pretty much close to zero interest rates as it is and has no bullets left in its monetary-policy gun.
What are negative interest rates? Its an even more draconian monetary policy than zero interest rates, in which savers receive little to nothing in interest for their bank deposits. Under negative rates, a bank customer actually gets back less than the original deposit; in effect, a depositor pays the bank a fee for the privilege of storing cash at the bank. Negative rates are a last-ditch attempt by central banks to generate inflation and stimulate the economy by forcing people to spend rather than save, since saving becomes a money-bleeding proposition.
The Fed has already reduced its projected number of interest-rate hikes in 2016 by half, from four to two, and as new economic data come in, it will likely reduce that number further. If the economy undergoes any hiccups at all, the Fed will be forced to reverse its December rate hike its first in almost a decade and be right back at zero, with a negative-interest-rate policy (NIRP) looming on the horizon.
Gold is an excellent asset to hold during both ZIRP and NIRP environments. The dollar will weaken, and virtually no safe asset will offer a rate of return. Investors will start looking for the return of their money, not a return on their money. What happens when you give a bank $100 on deposit but get only $98 back when you return for your money? The power of gold during negative rates is that it offers a better chance at a yield than cash or bonds, which are money losers under NIRP.
$1,350 gold is next, firm says after bullions best quarter since 1986
Posted onGold on Thursday sealed the deal on its best quarterly price performance since 1986.
Though Asian demand has played a significant role in the metals breakout performance this year, Western investors surprisingly provided the spark that gold needed as they sought safe-haven shelter from volatility on the stock market and concerns over Chinas slowdown.
Holdings in ETFs rose 21% to 1,761.3 metric tons in the period, the biggest gain in any quarter since the three months ended March 2009, Bloomberg reported. At the same time, trading volumes on the largest futures exchange, the Comex in New York, reached 14.1 million contracts, a record for a first quarter.
Now that first-quarter 2016 is history, some experts are weighing in on what the rest of the year holds. One of the major precious-metals consultancies, Metals Focus of London, thinks this quarters rally has legs.
30% gain from December 2015 low: Changing expectations towards the outlook for U.S. interest rates, concerns about monetary policy elsewhere, as well as turbulent equity and bond markets, have re-kindled institutional investor interest in the metal, said its director, Nikos Kavalis.
This impressive recovery will mark the end of the bear cycle that started in late 2011. Further gains later in the year are forecast to see gold peak at $1,350 by end-2016, almost 30% higher than its December 2015 low.
And count Investec Asset Management as a true believer in golds rebirth. We believe that this years upturn in gold has fundamental support and, whilst early, does appear to be the start of a longer-term rally for the sector, it wrote, citing limited scope for further Fed rate hikes, strong emerging-market demand, and equity-market turbulence.
Another metal consultancies are less bullish but nonetheless say gold likely has bottomed. Acknowledging bullions blistering start to 2016 based on a variety of global macroeconomic concerns, GFMS nonetheless foresees another pullback this year, largely based on the argument that current market turbulence will start to ease.
GFMS sees improving fundamentals: Though predicting that gold might drop below $1,200 this year, GFMS tempered that outlook by saying bullion will find support due to the improving market fundamentals, namely, supply and demand.
On the supply side, we forecast global mine production to drop in 2016, representing the first annual decline since 2008 and the largest in percentage terms in more than a decade. While we expect a modest recovery in scrap volumes, particularly from markets where the gold price is not expressed in dollar terms, this is unlikely to offset losses in global mine production, thus resulting in lower total supply.
By contrast, we expect physical gold demand to improve later in 2016, particularly for investment-grade jewellery, triggered by a rebound in pent-up demand from Asia. This is likely to be driven by concerns about the slowdown in China, heightened uncertainty in currency markets, particularly in emerging economies, and a growing desire to diversify personal wealth. Moreover, a clear uptrend in the gold price or, at least, signs of stabilisation are likely to see investors returning to the market and gold regaining its lustre. The forecast reduction in global mine output and a gradual recovery in demand will see the physical surplus narrow in 2016, providing support to the gold price and laying the foundation for better prospects.
Economic concerns to resurface: And CPM Group also sees gold maintaining strong support even if it does pull back, before rebounding toward 2017. CPM President Jeff Christian says easing fears about the global economy could take gold back down to $1,170 or even $1,130.
Our expectation is that the gold price comes down over the next two quarters second and third and by the end of year starts rising again as investor concerns of the economic outlook for 2017 starts to take hold again, he said.
Double down on gold thats what negative rates mean, WGC says
Posted onNegative interest rates have been called a game changer for gold investing, and now a new report from the World Gold Council (titled Gold in a world of negative interest rates) has reaffirmed that standpoint.
Recently introduced in Japan and already in full sway in much of Europe, negative rates take zero interest rates a step further by in effect imposing storage fees on bank depositors. The result is that cash sitting in a bank or parked in a government bond becomes an automatic losing proposition, while golds primary caveat the fact that it has no yield virtually disappears.
Because of this new and unprecedented phase in monetary policy, the World Gold Council concludes that investors should consider doubling their gold allocations amid negative interest rates.
4 reasons gold demand will rise: The WGC lists four reasons why demand for gold as a portfolio asset will structurally increase.
- Gold becomes cheaper to hold when rates are negative;
- many assets that fund managers normally would choose, such as sovereign bonds, become money losers when yields are negative;
- as a key tool in global currency ways, negative rates further undermine confidence in fiat money; and
- negative rates are an admission that more mainstream monetary-policy tools have failed, and the effects of negative rates are uncertain at best.
Although negative-interest-rate policies have never been common as official doctrines, the WGC has studied several periods in which real interest rates have been negative, and the effect on gold has been tremendous.
Gold returns twice as high: What is a real interest rate? Its calculated by subtracting the inflation rate (as measured by the Consumer Price Index) from the Feds official interest rate (in this case represented by the 12-month constant maturity T-bill).
Under real negative rates, gold has thrived. When real rates are negative, gold returns tend to be twice as high as the long-term average, the council concluded.
Negative rates thus bolster the case for gold, most importantly for central banks, which already have been on a bullion-buying tear for about the past decade. Because these banks usually invest in a more limited set of assets, gold becomes an even more solid investment.
The prolonged presence of low (and now even negative) rates has fundamentally altered the way investors should think about risk and may result in a broader use of assets like gold to manage their portfolios more effectively and preserve their wealth over the long run, the WGC report said.