Gold Eclipses $1,800: What Next?
David Rosenberg, chief economist and strategist at Gluskin Sheff, in a CNBC interview on Friday stated his case for a stagnant economy and a challenging investment environment. Low bond yields and a sluggish U.S. economy are here to stay for quite some time, according to Rosenberg. Rather than experiencing a manufacturing inventory cycle recession every five to ten years - as has been the case in the post-World War II period - the economy is likely to face a recession every two to three years. The prominent investment strategist cautioned that the balance sheet recession facing the U.S. is of "historical proportions"
Rosenberg, who has been bullish on the gold price for many years, noted that while the price of gold is "overextended" in the short-term, the yellow metal will continue to move higher over the longer-term as the Federal Reserve wages battle against deflation. Chairman Bernanke, in the policy statement following last week's Federal Open Market Committee meeting, pledged to keep the fed funds rate near zero until, at least, mid-2013. According to Rosenberg, this past week's FOMC statement indicated that the U.S. is "staring a recession in the face." Gold prices soared following Bernanke's pledge, surging to a new all-time high of $1,815 per ounce on August 11.
Gold has advanced in virtually a straight line, and while the longer-term outlook is decidedly bullish, the yellow metal may due for a pullback. Sentiment has become one-sided with Market Vane's bullish consensus figure on gold hitting 90% last week. Gold's 50-day moving average of $1,586 per ounce, which sits 9.1% below the current spot price, remains strong support and could contain a correction should one ensue.
Currency Wars
One of China's best-selling books is titled Currency Wars. Competitive currency devaluations is a topic making front page headlines as both Japanese and the Swiss policy makers have intervened recently in the foreign currency markets in order to stem the appreciation of their respective currencies. Meanwhile, the quantitative easing campaigns implemented by the U.S. Fed, the Bank of England, and now the European Central Bank, diminish the value of the dollar, pound, and euro, respectively. The battle for exports through a cheaper currency is heating up and the heightened volatility in foreign exchange markets is a sign of the growing instability in the international monetary system.
The yellow metal has begun to reassert itself as a monetary alternative. The Bank of Korea purchased 25 metric tons of gold over the past few months and the Bank of Thailand bought 17.7 metric tons in June. Steve Forbes, in a recent editorial in his magazine asked the question: "Which would you trust to protect the integrity of your money - a gold standard or Washington politicians." It appears that many foreign nations are increasingly choosing the former.
Last week, JP Morgan highlighted a scenario where $2,500 gold could be reached before the end of the year.
A Bull on Gold Stocks
Gold stocks continue to underperform the price of gold with the Market Vectors Gold Miners ETF (GDX) lower by 3.7% in 2011 versus a 23% gain in the yellow metal. This represents a buying opportunity, according to Fred Hickey, member of the Barron's roundtable - which includes prominent investment strategists such as Bill Gross, Mario Gabelli, Meryl Witmer, and Marc Faber.
Hickey told Barron's, in this weekend's edition:
"I stay with my secular bull-market play in gold. I own bullion and gold exchange-traded funds. The better opportunity right now is in gold-mining stocks. They have underperformed for a while. They are going to get a huge boost on price alone. I like Agnico-Eagle Mines (AEM), Newmont Mining (NEM), and Yamana Gold (AUY) for the second half of the year."
David Rosenberg, chief economist and strategist at Gluskin Sheff, in a CNBC interview on Friday stated his case for a stagnant economy and a challenging investment environment. Low bond yields and a sluggish U.S. economy are here to stay for quite some time, according to Rosenberg. Rather than experiencing a manufacturing inventory cycle recession every five to ten years - as has been the case in the post-World War II period - the economy is likely to face a recession every two to three years. The prominent investment strategist cautioned that the balance sheet recession facing the U.S. is of "historical proportions"
Rosenberg, who has been bullish on the gold price for many years, noted that while the price of gold is "overextended" in the short-term, the yellow metal will continue to move higher over the longer-term as the Federal Reserve wages battle against deflation. Chairman Bernanke, in the policy statement following last week's Federal Open Market Committee meeting, pledged to keep the fed funds rate near zero until, at least, mid-2013. According to Rosenberg, this past week's FOMC statement indicated that the U.S. is "staring a recession in the face." Gold prices soared following Bernanke's pledge, surging to a new all-time high of $1,815 per ounce on August 11.
Gold has advanced in virtually a straight line, and while the longer-term outlook is decidedly bullish, the yellow metal may due for a pullback. Sentiment has become one-sided with Market Vane's bullish consensus figure on gold hitting 90% last week. Gold's 50-day moving average of $1,586 per ounce, which sits 9.1% below the current spot price, remains strong support and could contain a correction should one ensue.
Currency Wars
One of China's best-selling books is titled Currency Wars. Competitive currency devaluations is a topic making front page headlines as both Japanese and the Swiss policy makers have intervened recently in the foreign currency markets in order to stem the appreciation of their respective currencies. Meanwhile, the quantitative easing campaigns implemented by the U.S. Fed, the Bank of England, and now the European Central Bank, diminish the value of the dollar, pound, and euro, respectively. The battle for exports through a cheaper currency is heating up and the heightened volatility in foreign exchange markets is a sign of the growing instability in the international monetary system.
The yellow metal has begun to reassert itself as a monetary alternative. The Bank of Korea purchased 25 metric tons of gold over the past few months and the Bank of Thailand bought 17.7 metric tons in June. Steve Forbes, in a recent editorial in his magazine asked the question: "Which would you trust to protect the integrity of your money - a gold standard or Washington politicians." It appears that many foreign nations are increasingly choosing the former.
Last week, JP Morgan highlighted a scenario where $2,500 gold could be reached before the end of the year.
A Bull on Gold Stocks
Gold stocks continue to underperform the price of gold with the Market Vectors Gold Miners ETF (GDX) lower by 3.7% in 2011 versus a 23% gain in the yellow metal. This represents a buying opportunity, according to Fred Hickey, member of the Barron's roundtable - which includes prominent investment strategists such as Bill Gross, Mario Gabelli, Meryl Witmer, and Marc Faber.
Hickey told Barron's, in this weekend's edition:
"I stay with my secular bull-market play in gold. I own bullion and gold exchange-traded funds. The better opportunity right now is in gold-mining stocks. They have underperformed for a while. They are going to get a huge boost on price alone. I like Agnico-Eagle Mines (AEM), Newmont Mining (NEM), and Yamana Gold (AUY) for the second half of the year."
KEY UPCOMING CATALYSTS FOR GOLD
This upcoming week is relatively slow as far as economic
data points are concerned. The most important releases are the July
consumer price index, set to be released on Thursday, and July's
existing home sales, scheduled to be announced on Friday.
As noted above, the Fed has taken the possibility of an interest rate hike off the table until mid-2013. The market's collective attention has now turned to how likely the possibility is of a double-dip recession. With consumer confidence hitting its lowest level since 1980, any further deterioration in economic figures could cause equity markets to convulse again and money to gravitate toward gold.
As noted above, the Fed has taken the possibility of an interest rate hike off the table until mid-2013. The market's collective attention has now turned to how likely the possibility is of a double-dip recession. With consumer confidence hitting its lowest level since 1980, any further deterioration in economic figures could cause equity markets to convulse again and money to gravitate toward gold.
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