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Tuesday, May 22, 2018

Gold to Emerge as an Important Asset for Current Times

Despite a tame month, gold is set to remain a key part of any portfolio.

gold a useful tool for portfolio

Although multiple factors converged to push gold prices lower in April, an article on Financial Express says the metal could still emerge as the year's marquee asset due to the state of the global economy.

Besides temporary relief from geopolitical tensions and a rise in bond yields, a stronger U.S. dollar was also a major contributor to a tame month for gold. After a prolonged decline that raised eyebrows with both domestic and foreign investors, the dollar index finally caught some respite and reversed its trajectory. According to the article, the greenback now sits at multi-week highs, a position largely influenced by the Federal reserve's hawkish stance.

Having left interest rates unchanged during their latest meeting, the Fed nonetheless affirmed their previous forecast for a total of three rate hikes in 2018. Officials also expressed their desire to continue with the monetary tightening for the foreseeable future should current economic conditions persist. And while successive rate hikes are generally seen as negative for gold, there are ways that the metal could reap the benefits from this aggressive policy says the article.

To some, the Fed's current course is analogue to taking away the proverbial punch bowl. Given the loose monetary policy of the last decade, a sudden shift to a more austere approach could shock the laid-back markets. Among the worst to suffer this effect could be the long-soaring stock market states the article, which recently begun to show cracks after seeming invulnerable. The Fed's goal of reducing their balance sheet by $420 billion this year and $600 billion the next could slowly introduce discord into equities. Despite tax cuts and other encouraging developments, 2018 could see investors' optimism dwindle as they wake up to the reality of a lesser money supply.

Inflation expectations could act as another source of gold's strength. The Fed is confident that it can maintain the targeted inflation rate of 2%, and much of their current agenda rests upon it. But many are quick to forget that inflation was moving in the opposite direction for some time, raising concerns that the reversal was achieved too quick. Given that the ideal 2% have already been surpassed, the Fed could find itself struggling to deal with soaring inflation. In this environment, the article says gold would quickly become a most-desired commodity.

The economic tug of war between the U.S. and China will also continue to remind investors that gold is a key part of any portfolio. Despite the seeming calmness in recent weeks, the situation is only beginning to develop, and the leaders of both countries are unlikely to back down. Global growth, industrial metals and energy will all come under attack should the threat of a trade war return.

The article states that this would harm bond yields as investors shun U.S. debt, and the rapid expansion of the latter has already placed the dollar's long-term purchasing power into question.

Regardless of short-term happenings, the ongoing lack of equilibrium in the global economy along with constant geopolitical flare-ups are sure to preserve gold's favor among risk-averse investors.

Tuesday, May 1, 2018

ETF Manager Says Believes it's Time to Move into Gold

Fritz Folts says the risk-happy investment landscape in recent years is quickly shifting to one that favors safer assets like gold.

etf firm moves into gold

According to a recent article on Bloomberg, a veteran fund manager with over three decades of experience has lost his appetite for ETFs and is moving into gold. Fritz Folts currently acts as chief investment strategist and managing partner at 3EDGE Asset Management, where he oversees $800 million in assets. The firm started in January 2016 with $100 million under management, and has since averaged an annual return of 9.03% in its portfolio.

During their early days, the firm focused heavily on emerging-market ETFs and country-specific funds and made several profitable bets along the way. But the article reports Folts no longer sees this strategy as prudent and has slashed his positions in stock-backed funds while eliminating his exposure to emerging-market ETFs.

Folts' reasoning is straightforward – he says that the risk-happy investment landscape in recent years is quickly shifting to one that favors measured bets and safer assets. In fact, 2017 is an example of how growth momentum and optimism from investors can combine to propel a market sky-high, as equities kept reaching new peaks throughout the year.

In 2018, the senior money manager sees growth diminishing across the board and investors becoming wary of over-exposure to risk. The article states the latter has become that much more apparent by this year's sharp tumbles in the stock market, which were concerning enough to elicit a response from the White House.

In a phone interview with Bloomberg, Folts shared his view that gold is becoming the asset to own in this new environment. To him, the metal is the best way to absorb external shocks and combat the rise in volatility. Gold has gained 1% over the past month, aided by geopolitical tensions and the possibility of a trade war between the U.S. and various other top economies.

What started as an increase in tariffs on metal imports by President Trump escalated into a back-and-forth between the U.S. and China, sparking concerns that the global market could suffer as a result, reports the article. The European Union likewise responded negatively to Trump's restrictions, threatening to retaliate in kind should the policy continue. These events placed further pressure on the stock market, which was already showing its first cracks, and reignited interest in precious metals.

Folts is also bearish on debt and expects rising rates to continue pushing bonds down. Absent a particularly strong corporate earnings report or an abrupt change in the Fed's rhetoric, he sees little reason to place faith in stocks and speculative ETFs, especially given gold's strong performance as of late.

"We will definitely have more volatility this year," he added. "And gold can help us there."

Tuesday, March 27, 2018

International Bullion Firm Claims Gold a Good Insurance Policy

Analysts say prospects of higher rates does little to take away from the metal's appeal.


Last week the Federal Reserve met expectations by hiking interest rates for the first time in 2018. While gold's price trended lower in the aftermath of the hike, Kitco reports that one international bullion firm believes the prospect of higher rates does little to take away from the metal's appeal.

In their latest report, analysts at Degussa said that investors should view price dips as an entry point given the various factors that make gold investment a prudent strategy. Besides general protection against fiat currency manipulation, the firm pointed to the possibility of rate hikes leading to a recession as a particularly poignant reason to consider gold in one's portfolio.

Using the same analogy that multiple other analysts have turned to, Degussa explained how the Fed's hikes could ultimately have a major adverse effect.

"The Fed's tightening policy is like taking away the 'punch bowl,' and if it raises interest rates too much, the party would definitely come to an end. It is against this backdrop that gold, even in times of slightly higher real interest rates, is increasingly attracting investors, which has ultimately led to a price increase," said the report.

Although gold is mostly seen as an asset, the analysts noted that the view of the precious metal as global currency is gaining traction, namely because of inflationary pressures that erode faith in fiat money. Gold is frequently pitted against the dollar and soars in times of a weaker greenback, but Degussa's team noted that the metal continues to outperform a basket of global currencies.

"The price of gold should, over the long run, compensate its owner for the loss in the purchasing power of fiat currencies," the firm said.

The markets were near-unanimous regarding the likelihood of the latest hike, but there is plenty of doubt in regards to the Fed's future course of action. The Kitco article writes that while some believe the Fed could hike rates up to four times this year, especially given the hawkish tone of new chair Jerome Powell, others cast doubt on their ability to raise borrowing costs further.

According to Kitco, another factor that could play in gold's favor is a potential shift in the Fed's rhetoric. The central bank bases its current strategy on forecasts of a stronger economy and a lower unemployment rate, with hopes that inflation will reverse its backwards trend and meet the targeted rate. Despite their optimism, some market participants believe that the Fed will alter its prognosis in one or more areas, which would give rise to higher gold prices and serve as an additional deterrent from successive rate hikes.

Tuesday, March 6, 2018

Managing Director at Crossborder Capital Calls Gold Best Safe Asset

A wealth management firm says short-term dips in gold prices are a buying opportunity as gold is bound to go higher over the longer term.

crossborder capital considers gold safe asset

According to one wealth management firm in a recent Kitco article, short-term dips in gold prices represent a buying opportunity as the metal is bound to go higher over the longer term.

Talking to Kitco, Michael Howell, managing director at Crossborder Capital, said that the prices of safe assets are wrong, especially Treasuries. Although his firm expects bond yields to rise to 3.5% by year's end, higher Treasuries could uncharacteristically support gold prices because of the mechanism driving yields up.

He notes the optimistic tone of Fed Chair Jerome Powell in his recent speech suggested further tightening of the monetary policy and potentially four rate hikes this year. While this is generally seen as negative for gold, Howell says the metal will instead benefit from exaggerated bond valuations.

Howell explained that, with the supply of Treasuries increasingly outstripping demand, their gains have to be inflated to attract investors. This has brought on overpriced bonds, a situation that will worsen should the Fed roll in another year of successive rate hikes.

"The appetite for government debt is dropping off pretty fast, so you have to have higher yields to make it more attractive," said Howell regarding the worrying fundamental picture of Treasuries. "We see a repricing of safe assets and gold remains the best, cheapest asset."

The article also reports on the dollar, which, despite its prolonged plunge, one that recently saw the currency test multi-year lows, Howell believes that the greenback remains overvalued. Because of this, Howell's firm sees further losses in the dollar as a certainty. This prediction is especially bullish for gold, as the metal has a strong inverse correlation with the reserve currency and soars in times of a weaker dollar.

Howell believes the source of the dollar's weakness comes from a loss of influence in the global market. Examples of this include the Chinese yuan, which is already competing with the U.S. dollar for a prominent spot as a transaction currency in Asia. The growth of the euro as a funding currency acts as yet another threat to the dollar's status with foreign investors reports the article.

With expectations of a reversal in bond yields and more bearishness in the dollar, Crossborder Capital says that the entire financial background is positive for gold. The firm has been advising investors to stock up on the metal during weaker periods because it will go higher in 18 months.

"Strategically, we think we are at a tipping point. It's just a question of how quickly things shift," said Howell.


Tuesday, February 13, 2018

Stock Market Fears Reinforce Gold According to Famed, Frank Holmes

As stocks faced a near 1600-point correction, Frank Holmes reminds us of his time-proven advice to hold 10% of one's portfolio in gold.

frank holmes stock market fear good for gold

After a prolonged record-breaking performance, the stock market was finally taken down a notch by the near-1600-point correction that started earlier this month. As panic spread among investors, gold emerged as the standout asset for the duration of the scare.

Frank Holmes recently wrote in a Forbes article that gold's performance against plunging stocks is expected, but no less impressive, and reinforces his time-proven advice that investors should hold 10% of their portfolio in gold.

As the downturn continued, all of the major averages turned negative for the year, with the Dow experiencing its sharpest daily decline ever. The article writes that the CBOE Volatility Index, sometimes referred to as the "fear index", also spiked to its highest point on record, an increase of almost 100%. Given the severity of the drop, experts scrambled to understand what caused it and whether it was a one-off scenario, with explanations ranging from overbought conditions to recessionary concerns.

As opposed to worries that the economy is struggling, Holmes believes the selloff might have been caused by the earlier report from the Labor Department, which showed the highest wage growth since the financial crisis. This added fuel to ongoing concerns that inflation is building up after a lengthy absence, a notion Holmes supports.

The article notes that all of the major indices, such as the consumer price index (CPI) and its alternate version, show that inflation is trending upwards. An inflationary environment wreaks havoc on traditional havens such as Treasury yields and even cash, leaving gold as one of the few assets investors can turn to.

Holmes says that inflation expectations have already given gold a leg up, which could be just the start if the cost of living shoots up. Analysts at BCA Research agree, adding that gold will serve as an important hedge when the stock market turns bearish in the second half of 2019.

Holmes, however, believes gold bulls might not need to wait that long given the amount of volatility and fear already seen in the markets. Despite reassurances that the fall in equities was a momentary lapse, the flight to gold shows that investors are keenly aware of the stock market's propped-up position.

Even with all of its gains, Holmes points out that the ever-steady gold continues to outperform the equity market by a large margin in the 20-year period. Since its untethering from the dollar in 1971, the metal has also beaten out every other asset class, including cash, commodities and bonds, over multiple time periods. The article states that these statistics exemplify gold's low or negative correlation to other assets and show that the metal allows investors to turn a profit in a wide variety of situations.

Tuesday, January 23, 2018

What the World Gold Council Predicts for Gold in 2018

After its biggest jump since 2010, the World Gold Council outlined several factors that could propel gold even higher in 2018.


Gold rounded up the previous year with a 13.5% gain, making it the second-best performing asset of 2017 after stocks according to an article on BusinessDay. After its biggest jump since 2010, the World Gold Council outlined several factors that could propel the yellow metal even higher in 2018.

Aside from a belief that gold's gains are sustainable, author of the article Allan Seccombe writes the metal also benefited from geopolitical flareups, which included tensions in the Middle East as well as the U.S.-North Korea conflict. Aiding gold further were expensive stock valuations and a weaker dollar, the latter having plunged towards the end of the year. The greenback appears set to continue along that path in 2018, having recently reached a three-year low.

The WGC said that the dollar's decline will be perpetuated by market expectations of a global recovery which outpaces U.S. growth. In response, central banks around the world would look to quickly unwind their loose monetary policies, said the council. Although higher rates are seen as a negative for gold, Seccombe writes a reduction in quantitative easing worldwide would increase volatility, sending investors towards the safe haven of gold.

Global growth is a key factor that could underpin the price of gold in the new year states the article. A rise in incomes leads to more demand for physical gold in the form of jewelry, as well as industrial demand for gold-containing technology, such as smartphones and tablets. Together with expanding economies in the U.S. and the EU, a shift in China's economy from investment-driven growth to a consumption-based one should act as a major boon for gold.

The WGC added an overheated equity market to the list of potential tailwinds. Amid concerns that a correction in equities is looming, the council said that investors could particularly benefit from exposure to gold in order to protect themselves against major losses. Greater ease of access to gold, facilitated by various platforms, is also expected to boost demand for the metal.

Noting that the forecast for gold in 2018 has thus far only been modestly higher, Sharps Pixley CEO Ross Norman said that gold has rarely been more important to own. To Norman, the key for any gold investor is patience – the CEO compared gold's current price elasticity to that of the 1990s, reminding us that the turbulent 2000s followed after.

Stressing that the best is yet to come for gold, Norman predicted an average of $1,358 an ounce in 2018, adding that it could climb to $1,400 at some point during the year.

Wednesday, January 3, 2018

Gold on Track for Best Year Since 2010

A struggling U.S. Dollar helped boost gold at end of year, acting as the metal's biggest driver.

gold breaks new highs

As seen on Reuters, gold recently hit its highest level in 2 and a half months, putting it on track to its best year since 2010. The metal rebounded towards the end of the year due to a myriad of factors, most of which, according to the article, had to do with the U.S. dollar.

The greenback had a difficult year as several geopolitical events subdued it. Aside from increasing the appeal of owning gold, the article states that the U.S.-North Korea conflict also harmed the dollar, giving more ground to the yellow metal.

Persistent low inflation in the U.S. remains a significant headwind for the dollar. The article references Georgette Boele, an analyst at ABN Amro, who said that inflation concerns allowed gold to thrive even after three interest rate hikes by the Fed in 2017. The same concerns have also impacted market sentiment, letting gold hold its ground against rate hike predictions in 2018.

Boele added that the dollar remains the most important driver of gold prices, followed by yields. Aside from a dollar that didn't profit from successive rate hikes, 2017 also saw weak trade and meager yields, both of which bolstered gold. While Boele said that a recovery in the dollar could harm gold prices in 2018, it's worth noting that the issues placing pressure on the greenback are still ongoing.

As the dollar had its worst showing in three months with a potential to post its worst year since 2003, gold breached the $1,300 level to hit $1,302 an ounce this past Friday afternoon. The article notes that ScotiaMocatta's technical team pointed to $1,306, gold's October high, as the next level gold could capture before the year ends.

The analysts said that gold has benefited from technically driven momentum, adding that the metal broke its 100-day moving average in a markedly positive development. With enough strength in the closing days of 2017, gold is poised to have its best month since August.

Other precious metals also enjoyed a favorable year, with palladium's gains standing out the most. The metal recently hit $1,072, its highest level since February 2001, amid worries over availability after years of market deficit. Palladium enjoyed an unusually large premium over platinum in the fourth quarter, with the latter rising 3.8% this year.

Silver's gains were somewhat higher, having risen 6.5% so far this year, last closing at $16.97 an ounce.