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.

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.

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.

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.

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.

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.

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.

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.

How Gold Could Fix Turkey's Currency Issue

Forbes' Steve Hanke believes gold could make the Lira a worthwhile currency.

According to Forbes contributor Steve Hanke, Turkey's currency continues to serve as its country's Achilles' heel. Despite the Turkish president's political maneuvering, Hanke claims in a recent article that there is no hiding the truth from the Turkish people: the lira is effectively a junk currency and a bad choice of wealth storage.

In the article, banking data shows up to 70% of deposits in Turkey are made in a foreign currency. The lira has been on a declining trajectory since 2008, and the Central Bank of Turkey was forced to replace its diminishing foreign assets with lira denominations, further complicating affairs.

Hanke believes that, in order for the country and its President to yield real power, these rampant currency issues need to be fixed. And despite the extent of Turkey's currency struggles and the length of time that they stretch, the solution might be a simple one.

The lira could be made into a worthwhile currency, says Hanke, by attaching a gold standard to it. Although some show no recollection of it, Hanke reminds us that gold was a central part of money until the 20th century, owing in no small part to its ability to preserve purchasing power.

Ever since gold was abandoned by the official monetary system, the article states that there have been calls to restore it to its former role, with some predicting that the yellow metal is bound to return. To Hanke, the most infallible way of using gold to back Turkey's economy is in the form of currency boards.

These boards have existed in some form in over 70 countries and, when applied correctly, allowed for increased financial discipline and higher growth as opposed to a system revolving around central banks.

The article reads that, for optimal effect, the currency board would be stationed in Switzerland to improve regulation, and its purpose would be to issue notes and coins wholly backed by gold reserves. Furthermore, the issued currency would be convertible to gold by Turkey's citizens upon request and without fee.

Independent from Turkey's politics, Hanke's proposed board would alter the country's everyday financial dealings without assuming the burden of the government's obligations. And, so as to remove any doubt over bullion coverage, the physical gold tethered to the board's denominations would be held in an internationally-certified gold warehouse or a similar institution.

With the added flexibility of choosing whether the currency board would be government-run or private, Hanke believes that Turks would have an all-encompassing way of returning to a system that is proven to create more stable and organized economies.

Seeking Alpha Writer Sees 2 Drivers That Could Send Gold Prices Higher

Gold prices could steadily rise in the short term and long term.

Seeking Alpha's Clif Droke sees two solid drivers that could send gold prices higher, one in the shorter term and one over the long-term.

The short term driver is a potential reignition of safe-haven demand due to a build-up of weakness in stocks.

Some have expressed concerns that the stock market's run is built on overly-optimistic projections, and the recent surge in 52-week lows posted by NYSE-listed stocks corroborates this. In this article, Droke expresses that the broad market faces internal selling pressure, and a continuation of this weakness could lead to a familiar flight to the safety of gold as stock market indices slump.

As his long-term driver, Droke points to an unusual combination of fear and inflation expectations. While these might not seem to go hand-in-hand, Droke argues that they have been the yellow metal's biggest backers since last year.

After a jump in prices brought on by the merciless campaigns of both presidential candidates, gold assumed a downwards trajectory when Donald Trump was elected in November. The "Trump bump" saw investors abandon safe-haven assets in order to load up on equities, riding on the promises of a stronger and more stable economy.

However, the article points out that this faith has since largely evaporated amid political concerns, including uncertainty over Trump's tax plan and its ability to stimulate the markets. A strong booster for gold on its own, political uncertainty in the U.S. is aided by inflation expectations, which Droke feels are significant enough to facilitate a gradual increase in gold prices.

While the markets aren't expecting high inflation in the near future, Droke reminds us that present-day inflation is still markedly higher than it was two years ago when deflation was on the horizon. Furthermore, signs such as a lessened appetite for money point to an upcoming increase in U.S. inflation.

Droke notes that the demand for money was at its highest immediately after the credit crash as the world economy looked to rebuild itself. Since then, economies around the world have improved, led by developed Asian countries – in turn, demand for money has subsided as investors braced for higher inflation, improving the outlook for gold over the longer term.

Despite recent dips, Droke points out that the gold price is far above its December 2015 lows and is closer to its 4-year high than it is to the low. Cracks in the equity market, concerns over the U.S. political situation and a rise in inflation expectations should provide ample support for the yellow metal moving forward.