July 31, 2012
UBS, one of the largest banks in Switzerland, lifted its one-month forecast for the price of gold to $1,700, up from $1,550, and boosted its three-month forecast to $1,750 from $1,600.
Edel Tully, precious metals strategist at UBS, expects that US Federal Reserve policy will be supportive of gold prices going forward and explains that the technical pattern for gold is positive right now.
Finally, Tully believes that global seasonal factors will contribute to higher gold prices over the next 3 months as well.
July 25, 2012
Gold shot sharply higher today, closing above $1600 per ounce for the first time in nearly 3 weeks.
Gold was motivated by a weaker US dollar amid speculation that the US Federal Reserve will institute some sort of monetary stimulus policy, dubbed “QE3” by observers.
Spot gold was more than $28 per ounce higher today as a result.
A further monetary stimulus package would benefit gold for two reasons:
1. It would further undermine the value of the dollar. Since the dollar is the world’s reserve currency of choice, any weakness in the dollar turns out positive for gold. In other words, gold serves as a counterweight to the dollar. By essentially creating more dollars out of thin air when the world is already awash in dollars, the inevitable outcome of a new QE3 would be a weaker dollar and higher gold prices.
2. By pressuring interest rates even lower, investors seeking safety and security would be more inclined to turn to gold, since yields on bonds would in many cases actually be negative after inflation is taken into account.
Now is the time to move into gold–before the Fed announces a new QE3 policy that will send prices significantly higher.
July 23, 2012
The US stock market fell sharply today, mostly because of renewed worries coming out of Europe.
It now looks as if the $100 billion bank bailout package the European Union granted to Spain isn’t going to be enough and the fear is that a much larger, broader bailout of the country’s financial system will be required. Spain is not Greece. Spain has a much larger economy and a much larger banking system. Scraping together the money to fix Spain’s debt woes is a lot easier said than done. In fact, no one is certain that a bailout can or should be accomplished at all.
Speaking of Greece, the old problem that was supposed to have been fixed is still very much of a problem. The bailout program that the European Union put together for Greece worked so well that now their Prime Minister is saying their economy is in a “Great Depression:”
For now, the Dollar has been the beneficiary of the European trouble, but there are other indications that the dollar’s strength can’t last:
For example, the drought that we have reported on here twice before is getting worse, which means higher commodity prices ahead, pushing inflation fears higher, even as the economy stagnates:
And despite all the government spending over the past few years, all designed to stimulate the economy, the poverty rate in America is soaring, reaching levels not seen since LBJ originally launched the so-called “war on poverty:”
Meanwhile, disappointing earnings are pointing to a fast-aproaching recession in the US to go along with those higher food prices. STAGFLATION anyone?
Experts expect that recession any time now. Nouriel Roubini says the US economy is going from bad to worse:
Anyone who expects good things from the US dollar and stock market in these conditions is whistling past the graveyard. Diversification is the best defense and hard assets provide the best form of diversification.
July 20, 2012
Many observers thought that the economic and financial trouble in Europe was a thing of the past.
But just as we have learned so many times, this is the slow-burn crisis that always seems to come back. European policymakers can come up with band-aid bailouts, but those don’t solve the underlying, fundamental problems that exist in Europe. The European economy is in a depression, much of the European Union is in deep, unsustainable and, in some cases, unservicable debt. Bailouts won’t fix the breakdown and Wall Street knows that the trouble isn’t going away any time soon. In fact, the reason Wall Street sold off sharply today is that they know that in today’s interconnected world in which money flows at the speed of light, the crisis in Europe will be exceedingly difficult to contain.
As a result, with bad news coming from Spain today, the US stock market sold off sharply across the board.
The Dow fell 112 points, or 0.86%, to 12832, the S&P 500 dipped 11.9 points, or 0.87%, to 1365 and the Nasdaq Composite slumped 33.7 points, or 1.1%, to 2932. The US indexes were just following the example set overnight in Asia and Europe, where stock markets took even steeper dives. The Euro Stoxx 50 sunk 2.8% to 2237, the English FTSE 100 dipped 1.1% to 5652 and the German DAX slumped 1.9% to 6730. The Japanese Nikkei 225 sold off by 1.4% to 8670.
Readers may recall that early on in the European crisis bad news in Europe usually meant lower gold prices as investors liquidated gold to cover losses in other assets. Those days appear to have passed. While world stock markets were tumbling, gold was up over $2 per ounce, demonstrating gold’s role as an excellent diversifying asset for a balanced portfolio.
July 17, 2012
Two reports in the news today suggest that stagflation is on its way.
Stagflation is the economic affliction in which a stagnant economy (often characterized by high unemployment) coincides with rising prices (caused by an increase in inflation).
Stagflation was first identified back in the 1970s and is a terrible condition for stock investors and an ideal circumstance for gold investors. During the worst bout of stagflation in 1974-75, the S&P 500 declined 45% over 21 months, the worst bear market since the Great Depression. During the same period, the price of gold tripled, sending the value of rare gold coins accelerating even more.
Today we see stark signs of stagflation that every investor should prepare for by accumulating physical gold investments.
First of all, drought conditions are creating the conditions for a coming spike in food prices, a key component in the cost of living:
Secondly, the US economy is stuck in the mud, not going anywhere. Today Fed Chairman Ben Bernanke said as much and predicted that the stagnant economy would stay that way. He also offered no hint that the Federal Reserve would take any action to try to stimulate economic activity.
So, there you have it: rising prices combined with an economy stuck in the mud: stagflation.
History tells us that investors need to protect and build their wealth in such circumstances with gold investments.
July 16, 2012
There are two recent news articles recently published which point to two possible crises on the horizon for which investors better be prepared.
In both cases gold investments offer the best means of protection.
The first article comes from the Financial Times, which often places its articles behind a registration requirement so we will excerpt and summarize here…
Food crisis fears as US corn soars
Is the world on the brink of another food crisis?
It has become a distressingly familiar question. With the price of agricultural staples such as corn, soyabeans and wheat soaring for the third summer in five years, the prospect of another price shock is once again becoming a prominent concern for investors and politicians alike.
Essentially, what the Financial Times is warning us about is that the recent heat wave and drought conditions across much of America’s breadbasket threatens to bring us sharply higher food prices. Already we have seen the price of corn rise 44%, wheat 45% and soybeans 17%. This is similar to the type of price spikes which occurred in 2007-2008 when there were food riots in some 30 countries.
The food crisis in those days contributed to the economic crisis which touched off the worst bear market in stocks in a generation. It should be noted that the price of gold rose in both 2007 and 2008. This suggests that gold investments could provide a safe haven from any crisis that is touched off by this sudden development.
But the food crisis is certainly not the only crisis on the horizon and, while we all know about the tenuous situation in Europe, what many people do not realize is that America has severe debt
problems of its own that could conceivably touch off a crisis not unlike what Europe is going through now. One key difference however is, if the US debt situation reaches crisis proportions, who will bail the US out???
Per capita debt in the United States is higher than in all — or at least some, depending on how it’s calculated — the European nations that have accepted bailouts to date.
Based on official 2010 International Monetary Fund data released earlier this year, the U.S. debt per capita is $46,208.
Here’s the same figure for the four European countries that have accepted bailouts.
It’s all too easy to dismiss warning signs such as this by assuming that the US is different or that our economy is too big and diversified for the debt situation to derail it.
Perhaps. But perhaps not. And even short of crisis, the US still needs to service its debt obligations, which are growing all the time. And one possible outcome would be a decision by Washington policymakers to service that huge debt burden with dollars cheapened by inflation. In such a scenario, gold would be absolutely vital to investors since the dollar would plunge in value and periods of high inflation have historically been bad for stocks and bonds.