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Smart Money Is Moving Into Gold As Volatility Returns - Garret

Smart Money Is Moving Into Gold As Volatility Returns - Garret

Release Date:  Friday, June 8, 2018

Gold and Silver Prices

Gold closed a bit lower on Friday due to some strengthening in the dollar but ended on a gain overall from last week, as did silver. The G-7 summit and heightened political friction may determine gold's next move along with another possible interest rate increase by the Fed's as well as movement of the dollar.  

"Price action 'suggests that the yellow metal needs a fresh catalyst for its next major move,' said Lukman Otunuga, research analyst at FXTM. If the Group of Seven summit 'concludes in a deadlock with trade tensions heightened, the yellow metal could benefit as investors rush to safety.'

"Heightened political friction is often a bullish factor for gold because the precious metal supports the perception of bullion as a haven asset, but traders were contending with a stronger dollar, which tends to weigh on commodities priced in the currency, like gold." ("Gold ends lower, but clings to weekly advance on global trade tensions," Myra P. Saefong, Market Watch, 06.08.18.)

Gold ended the week up $5.60, closing at $1,303.50. Silver ended the week up $0.40, closing at $16.82.

Smart Money Is Moving Into Gold As Volatility Returns - Garret

Big named experts, both those bullish on gold and those previously bearish on gold, see gold as the best hedge against possible crisis.

"Two months ago, we hosted a conference featuring 25 world-famous asset managers, investment experts, and economists who discussed their economic outlook and predictions. I'm talking big names like "bond king" Jeff Gundlach, David Rosenberg, Louis Gave and others.

"I've never seen so many high-profile investors mention gold as a safety net-and that includes some who were previously hard-core gold bears.

"Unfortunately, the reason is not a happy one. All these "in-the-know" people are very worried about the direction the markets are taking…and why gold is the best hedge against the looming crisis.

"At the conference, Mark Yusko, CIO and CEO of Morgan Creek Capital Management, gave an emotional speech comparing the Fed to a dictator that robs the nation. He pointed out that despite $20 trillion being injected into the U.S. economy through quantitative easing since 2008, the results haven't matched the effort...

"Everybody's all excited about QE. Everybody's all excited about the Fed, but you realize that in the last 10 years, we had the worst growth in the history of America. Let that sink in for a second... 1.4% real growth for the last 10 years. And we have indebted our future to the tune of $20 trillion for nothing. This increased money supply, he said, resulted in currency devaluation. 'This is what dictators do…'

"'Gold is money," he commented. "It's real money. For 5,000 years, an ounce of gold has bought a fine man's suit. So you can see in 2007, we had the housing bubble in nominal terms…Today, we don't have a bubble. We have a bubble in nominal prices, so this is what dictators do.'

 "Jeff Gundlach, CEO of Doubleline Capital, provided a more technical forecast for gold. Given the situation in the markets, he thinks it's only a matter of time before the gold price breaks out:
"We're at a juncture in gold, not surprisingly, because it is negatively correlated with the dollar... Now we see a massive base building in gold. Massive. It's a four-year, five-year base in gold. If we break above this resistance line, one can expect gold to go up by, like, a thousand dollars.
"Gundlach was reluctant to predict the probability and timing of this massive gold rally, but he thinks that investing in gold at this price is a no-brainer: 'It's a great time to be buying gold... because one way or the other, this baby's got to break in a big way.'

"Louis Gave is the co-founder and CEO of Gavekal Research. The main theme in his keynote speech this year was a once-in-a-generation shift from a deflationary boom to the inflationary boom that we see today.

"…using the gold/bond ratio: "My starting point is always that... over a four-year period, bonds should always outperform gold... When they don't, when bonds underperform gold, that's the market giving you a very important signal." He pointed out that gold has been outperforming bonds for the past four years now. 'This, to me... means we are moving to an inflationary boom and bust period.' If that's the case, Gave told the attendees, the investing environment will radically change.

"Another positive trend for gold that Louis Gave sees is the growth of emerging markets (EM). That's because higher purchasing power in EMs tends to translate into higher gold demand: '...for me [gold] is a good proxy for emerging market growth. When people get rich in an emerging market, they buy gold. And the reality is today people are getting rich in emerging markets at an accelerating pace.'

"He said that growth in emerging markets combined with rising inflation and a weak dollar create a perfect setup for a gold rally in the coming years: 'I think the time indeed has come for having gold in your portfolios.'

"Grant Williams, author of Things That Make You Go Hmmm..., warned investors about the dangerous implications of a shift in U.S. monetary policy-another good reason to invest in gold bullion now.

"According to Williams, for the last 40 years, U.S. monetary policy has been built on constant injections of stimulus. Since… in the early 1980s, every Fed chair has pushed interest rates lower. Now QE is officially over and is to be reversed. Williams thinks that this marks a monetary shift, which spells trouble for equities.

"The key message for investors is, Williams said, that after nine years of one long, pleasant ride in equities, we've reached the point where the main driver of equity prices is about to reverse.

"… all the trends are pointing to rising inflation, he said. 'Gold performs best in a rising inflationary environment, not a high inflation environment. So, we're kind of moving into that sweet spot.'

"…if this inflation story gets some traction, then I think you're going to see money move to gold reasonably quickly. Further, Williams suggested, in periods of quantitative tightening, equities eventually crash. Since gold is inversely correlated to the stock market, this is another reason gold should rise in the coming years.

"In fact, history shows that gold has rallied in the last five out of seven recessions.

"Yet another speaker who praised gold was David Rosenberg of Gluskin Sheff. The biggest reason for Rosenberg's bullishness on gold is the United States' protectionism, which he thinks will inevitably push the dollar down:
"Rosenberg suggested buying gold as hedge against a weak dollar: 'Gold is perfectly inversely correlated with the U.S. dollar. If you want to hedge against the U.S. dollar as opposed to inflation... you have to have some gold in your portfolio.'" ("Smart Money Is Moving Into Gold As Volatility Returns," Olivier Garret, Forbes, 06.04.18.)

Now Is The Time To Get Defensive With Commodities And Gold-Alexander Capital - Christensen

Chief investment strategist at Alexander Capital believes we have had time to accumulate an asset with lots of potential given where prices have been. 

"Despite recent resiliency in equities, the market is moving closer to a turning point and one quantitative investment strategist says now is the time for investors to get a little defensive and add broad-based commodities to their portfolios, including gold.

"In an interview with Kitco News, Scotty George, chief investment strategist at Alexander Capital, said that his firm is currently overweight commodities, which included a small position in gold as the firm gets more defensive in the marketplace.

"'Right now our basic material portion is well over 10% of our overall asset allocation," he said. "We are probably more invested in defensive equities, including gold, than we have been at any time since 2008.'

"George said that right now, the firm's focus is on capital preservation as he sees signs that the equity markets are extremely overvalued. He added that markets are in the midst of a transition…

"As market sentiment is starting to shift, George said that growing geopolitical risks could be the spark that ignites the next downturn in equities. His comments come as concerns grow over the threat of a global trade war as U.S. President Donald Trump levies tariffs on steel and aluminum from Mexico, Canada and the European Union. All three regions have said they are going to implement tariffs against the U.S. in retaliation.

"'One of the things I was taught from a great mentor is that changes in market secular conditions, from bull to bear, don't usually occur organically, they occur politically. I think what is going to take this market down is either an irrationality or a failure to understand political rhetoric,' he said.

"While a downturn in financial markets will also impact commodity markets, George said that he is looking past any near-term weakness. He added that growing demand for raw commodities will ultimately be bullish for the sector.
"He noted that not only will commodity markets see growing demand in the years to come, but consumers will also have to deal with dwindling supply of finite resources.

"'What's occurring in the short term is the imposition of the political conversation on the long-term fundamentals of commodities and tangible assets,' he said. 'We are trying as best we can to ignore what's occurring in monetary policy in the Europe Union and what is occurring in fiscal policy in the United States.'

"Looking at the gold market, while some investors have been frustrated with gold's inability to break above $1,400 an ounce, George said that he hasn't been disappointed at all with the price action. He noted that gold is building a base, which has allowed investors to increase their exposure to the safe-haven asset.

"'It's quite exhilarating to think that we've had this much time to accumulate an asset that has so much potential,' he said.
"George said that he sees the potential for gold prices to move higher through the long term as global market volatility picks up as investors question the health of the global marketplace…" (Now Is The Time To Get Defensive With Commodities And Gold," Interview with Scotty George at Alexander Capital, Neil Christensen, Kitco News, 06.05.18.)

Weaker dollar pushes gold higher - Hobson

Weak dollar, Fed meeting and the US and North Korea summit meeting could all be potentials for gold gain.
"A weaker dollar helped to push gold prices higher on Thursday… Spot gold was up 0.2% at $1,298.26/oz by 10.53am GMT…

"The rise in prices is due to the dollar," said Capital Economics analyst Simona Gambarini. "The dollar has been the main driver of prices in recent weeks."

"A weaker dollar is good for gold because it makes the metal cheaper for buyers using other currencies and can fuel demand. However, Gambarini said investors were in wait-and-see mode ahead of the Fed meeting on June 12-13, when they expect both a rate rise and signals on the outlook for US monetary policy.

"Interest rates are important for gold because higher rates tend to boost the dollar and also push up bond yields, reducing the appeal of non-yielding bullion.

"Gold fell from almost one-and-a-half-year highs around $1,350/oz in mid-April to below $1,300 in May as the dollar strengthened to 2018 highs, but prices have steadied after the rally faltered.

"As well as the Fed meeting, investors were looking ahead to a summit between the leaders of the US and North Korea on June 12 and a meeting of the European Central Bank (ECB) on June 14.

"Both events could affect gold. Tension over Korea has supported gold prices, increasing demand for an asset viewed as a safe place to invest in times of geopolitical uncertainty." ("Weaker dollar pushes gold higher," Peter Hobson, Business Day, 06.07.18.)

Gold likely to shine brighter this time next year - Scrap Register

ING sees gold up to $1,400 an ounce.
"It's only a matter of time until gold breaks above $1,300 an ounce and climbs to $1,400, said ING, adding that a weaker U.S. dollar, U.S. debt, and positive physical demand will support the precious metal.

"'We forecast prices averaging $1400/oz in 2Q 2019 as the dollar resumes a decline and U.S. twin deficits return to the foreground,' ING commodities strategist Oliver Nugent said in a report published earlier this week… adding that the most exciting time for the yellow metal could still be ahead as the G7 summit is set to begin on Friday.

"'These tensions are expected to come to a head at this week's G-7 leaders summit and any escalation ought to play to gold's haven qualities receiving a double whammy for any confidence taken out of the greenback,' Nugent pointed out.
"Also, physical fundamentals are set up right to provide support for the precious metal, including Swiss gold export data from April, which showed the first four months as registering a 2% year-over-year increase, largely driven by Chinese demand, according to ING.

"Gold has been suffering from low fund flows and easing geopolitical tensions, which have been putting toward pressure on prices. Even a recent drop in treasury yields failed to have a significant impact on gold prices, said Nugent.

"Working in favor of gold long-term is the Federal Reserve's possible willingness to let inflation run above its 2% target.

"While a June rate hike is all but certain, the FOMC minutes show an increasing tolerance towards inflation above 2% and continued concern towards the flattening yield curve," Nugent wrote. "Any potential for derailing the future path of Fed rate hikes are positive for the longer term allure of holding gold as a non-yielding asset and help form our view that gold will shine brighter this time next year." ("Gold likely to shine brighter this time next year," Scrap Register News, 06.08.18.)