Tag: gold investing

Weekly Gold Price Recap: September 21 – 25, 2015

gold price recap

weekly-gold-price-september-25-2015

Gold experienced a three-day rally last week after the Fed announced it was not raising interest rates currently. This week opened, however, with a strong rally of stocks on Wall Street and European markets, which resulted in gold’s retreat from the three-week high that occurred on Friday. The one percent spike in stocks indicated a return of investor confidence, a bearish signal for the yellow metal.

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By Tuesday, a stronger dollar pushed gold down further. Conversations continued about the Federal Reserve’s interest rate hike, which could occur before the end of the year, according to some Fed statements, effectively placing a cap on the gold price.

Wednesday saw an uptick of 1% for the price of gold, a two-thirds recovery from the three-week high held last week. Data out of China showed the manufacturing sector shrinking at the fastest rate since 2009. Gold demand in both India and China is on the rise currently.

Palladium sank to a 6½-year low on Thursday after news broke about a Volkswagen scandal, which has an indirect negative effect on gold prices, as investors were wary of the precious metals market.

By Friday, gold slipped down 0.4% after Janet Yellen, Chairwoman of the Federal Reserve, announced that the U.S. central bank could be raising interest rates this year. There are two more FOMC meetings before the end of 2015.

Is Gold Still a Safe-Haven?

gold-investing-safe

Historically, gold prices have been influenced by certain market conditions and have been the antithesis of the stock market. As the U.S. economy grew weaker and interest rates dropped, most experts expected the price of gold to shoot up as investors fled a risky market for the safe-haven of gold. However, the expected massive spike in the price of gold never occurred, leading many in the industry to rethink gold’s place in a portfolio.

Over the last few weeks, global equities have fallen to a two-year low, yet gold never rallied. In fact, according to Bloomberg Business, “gold’s volatility rose right along with a measure of equity turbulence, diminishing its appeal as a haven. As stocks started to recover, the metal kept falling because of reports that signaled gains for the U.S. economy.”

Gold bucking its historical trend has been frustrating for investors. Many financial professionals went heavy into gold expecting the slumping markets to boost gold prices. Instead, the stock market rallied killing any hopes of a jump in gold at this time.

“A good test for gold was the latest round of volatility, and gold did not do much, since it has become unattractive as a safe haven,” Atul Lele, who helps oversee $5.1 billion as the chief investment officer at Nassau, Bahamas-based Deltec International Group, told Bloomberg Business.

Despite recent market trends and many analysts wondering if gold is no longer a safe-haven, there are many reasons to remain optimistic about gold’s future.

Why Gold Is Still a Smart Investment

The yellow metal’s largest obstacle has been the complete lack of inflation after the Federal Reserve implemented its Quantitative Easing (QE) program in order to stimulate the economy. Most experts still remained baffled by this, and continue to issue statements that inflation may still happen at any time.

Hyperinflation Ahead?

Ron Paul recently took to his YouTube channel in order to warn investors that there are “big changes coming for the U.S. economy.” He believes that QE created another economic “bubble” and we are on the verge of having to pay the piper. He fears that the inflation we have been avoiding will eventually make an appearance and it won’t be pretty. If Dr. Paul is proven correct, a hyperinflation scenario could spell doom for the U.S. dollar, making physical gold a very attractive investment.

Increased Demand for Physical Gold

Another reason to not write off gold is the increased physical demand from India and China, which make up almost half of the global market for gold. According to the Wall Street Journal, since late July, large Indian and Chinese retail investors have increased their buying of physical gold.

“Both gold investments and jewelry buying is seeing some recovery from a low base, “ Jammy Chan, head of Greater China for Gold Bullion International, told the Wall Street Journal.

In addition, China’s economic issues have shown no signs of dissipating even after the surprise devaluation of the yuan. This is a strong sign that even though the Federal Reserve may raise interest rates because of positive economic data in the U.S., the global economy is still struggling and gold is a global commodity.

“Gold will probably see some buyers return after investors realize there will probably be one rate hike this year, and that too, not a very big one,” Dan Denbow, a portfolio manager at the $820 million USAA Precious Metals & Minerals Fund in San Antonio, told Bloomberg Business.

Big Financial Firms Buying Gold

Finally, a recent report from Seeking Alpha, has shown that both Goldman Sachs and HSBC, two of the world’s biggest players in the commodities market, have recently made large purchases of physical gold for their own house accounts. This occurred even after Goldman Sachs issued a statement recommending that investors play the gold market on the “short side.” Both of these financial companies invest millions of dollars into research in order to know what we do not. So it really does make one wonder what they know that would lead them to buy tremendous amounts of gold for themselves.

Lately gold has not followed its historical trends, but neither has the global economy. We seem to be in uncharted waters. What does seem clear, however, is that the economic problems are not going anywhere anytime soon and there are many signs that they may get worse before they get better. Physical gold in a portfolio may just prove itself as a safe-haven once more.

Goldman Sachs and HSBC Betting Big on Gold

gold-bars-goldman-sachs-hsbc

Despite each issuing notices to investors that the market for gold is looking bearish, both Goldman Sachs and HSBC took delivery of over 3 tons each of physical gold this month. According to Seeking Alpha, “On August 6, 2015, Goldman Sach took delivery of a 3.2-ton purchase of physical gold.” On the same day, HSBC also took possession of 3.9 tons of the yellow metal.

The report claims that these purchases were “registered as being for the benefit of the bank’s own house account, rather than the accounts of customers.” So do the banks know something that we don’t? Why tell investors one thing and then do another?

In an interview about the gold market, Jeffrey Currie, from Goldman Sachs, told MarketWatch, “In longer term, we definitely like playing this market on the short side. We think we are in a structural bear market, not only in gold, but across the commodity complex, as the individual commodity stories are reinforcing to one another, creating a negative feedback loop.”

While this outlook may be true for the paper-gold market, which can function more like a standard stock, the physical gold market is showing some major signs of life. Seeking Alpha reports that physical gold demand “will exceed known supplies by at least 1,350 tons in 2015. More in 2016.”

So why would the banks advise their investors to the contrary? Seeking Alpha believes that they may be “setting up the paper market in order to buy from the physical market very cheaply.” Sounds a bit like a conspiracy theory, but the report offers some evidence.

HSBC strategists have been reported as saying there is a “drift towards Fed tightening and the associated USD strength, low global inflationary pressure, weak gold demand from India and China and market positioning and momentum.”

According to the article, this statement was made only a few days before a report was issued showing India had a 61% increase in gold imports between April and May. How could HSBC not know about this at the time of their strategy statement? HSBC is one of the largest participants in the Indian import market. Then they went and made this 3.9-ton purchase.

The biggest question raised by these actions is: what do the banks know that your average investor does not? Seeking Alpha believes that the banks are setting up a “Big Long,” similar to the now famous “Big Short” that Goldman Sachs is known to have taken before the 2008 market crash. Going long on physical gold would set the banks up for huge profits if the world does see a collapse of the worldwide bond bubble, which many analysts have been predicting. Since physical gold is known to increase in value as markets drop, the banks could make a killing by purchasing physical gold now on the lower side.

Even if this is just a conspiracy theory, the fact remains that these banks are saying one thing and doing another. Banks that spend millions and millions of dollars to know what everyone else does not in order to stay ahead of the market. These banks are stocking up on physical gold now, which means they must believe they are getting a good deal on a long-term investment.

Gold Prices Fall as Investors Wait on Fed Creating Buying Opportunity

gold-prices-down

Most of the recent U.S. economic reports have shown positive data, leading investors to speculate that the Federal Reserve may finally decide to start raising interest rates from their rock bottom levels. This could be bad for gold prices initially, as gold does not pay interest. However, global tensions and strong demand in the physical gold market, especially from China, could signal a prime buying opportunity.

According to the Wall Street Journal, “Gold prices fell on Monday as investors focused on the impact of recent upbeat U.S. economic reports on future monetary policy action from the Federal Reserve.” This continues the trend from last week of investors shifting from gold back into the stock market. Gold investors are very familiar with this trend, as this happens any time there is positive economic news.

Savvy gold investors know not to panic, however, as this is just speculation and there are many other factors to consider. First off, it is not a foregone conclusion that the Fed will raise rates.

“The timing is there in terms of the Fed wanting to raise interest rates, the question is will they be able to?” Ira Epstein, a broker with Linn & Associates in Chicago, told the Wall Street Journal.

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There is also the upcoming release of the U.S. employment report on Friday, which should have a big impact on the Fed’s decision.

“If the data suggests further pressure on average hourly income and increased strength in the labor market, the Fed may have its last window to move, which would have an initial negative impact on gold, but given the China issues, probably a buying opportunity,” Peter Hug, global trading director with Kitco Metals Inc., said in a note to clients obtained by the Wall Street Journal.

Concerns about China’s economic health had led to a nice rally in gold prices recently and their issues show no signs of abating anytime soon. Which is why gold may take a hit with the Fed decision, but may still remain a strong investment given the state of the economies of other global powers.

Another positive sign for the future of gold prices is the state of global demand for physical gold. Since late July, large Indian and Chinese retail investors have increased their buying of the yellow metal. This is significant, since the two countries make up about 50 percent of the world’s retail demand for gold.

“Both gold investments and jewelry buying is seeing some recovery from a low base,” Jammy Chan, head of Greater China for Gold Bullion International, told the Wall Street Journal.

So despite the impact of the looming Fed decision on interest rates, there are still many reasons to feel good about physical gold.

Price of Gold Weekly Recap: June 29 – July 3, 2015

gold price recap

weekly-gold-price-july-3-2015

Another week without net gain for gold has been bad news for investors.  As the dollar continues to pick up steam, precious metals have suffered as a result, with gold in particular dropping by ten dollars from the start of the week to the end. With prices as low as they’ve been in years, a lot of buyers have started to look at buying gold in large quantities, including some surprising parties.

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Monday started the week off with the trend of dropping value as gold began just above $1,185 an ounce and fell to $1,180. The Greek imposition of capital controls as the EU crisis reaches a boiling point continued to drag the Euro downward while providing buoyancy for the dollar. In addition to Greek news, the release of non-farm payroll data provided the dollar with strength and gold with volatility.

The second day of the week continued the trend as the price of gold fell below $1,175 on news of the official Greek decision. CME Group’s implied probability of a Fed interest hike in September kept the metal from dropping as hard as it could have, giving a bit of a cushion but still failing to turn gold into positive thresholds.

Wednesday was the worst day of the week for gold, dropping nearly ten dollars an ounce to close out at $1,167. Futures for gold were extremely light at 105,000 contracts, indicating not much interest in gold overall. As bad as the day was for gold, it proved even worse for the price of silver, which lost nearly a full percentage point compared to gold’s loss of just .33%. Conversely, platinum gained about seven dollars per ounce.

With gold dropping far and fast, some parties decided to pick up on the metal. Thursday saw the release of headlines that the Iranian government had seized no less than 13 tons of gold, valued at half a billion dollars, purchased from South Africa and held up in the negotiations and sanctions over the Iranian nuclear program. Gold held steady through Thursday without any net gain.

Friday gave gold the only rise in value of the entire week, closing out at just under $1,170.  The Friday rise prevented gold from losing an entire 1% in value throughout the course of the week, leaving investors with nothing to do but hope for a better performance come Monday.

How U.S. Interest Rates and Greek Troubles Influence Gold Prices

greek debt gold prices

On the heels of a weak first quarter for 2015 comes a slow recovery for the economy. Let’s take a look at the major factors influencing the price of gold as the calendar moves into mid-June—and beyond.

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Fed Rate Increase Negative for Gold?

The Federal Reserve Bank discussed the possibility of raising interest rates during their two-day meeting that was held on June 16 and 17. Doing so could cause the dollar to explode, bringing negativity to gold prices since this commodity does not bear interest. Some analysts, though, point to the fact that if the Fed should move too quickly and raise interest rates rapidly, investors might feel uncertain about the dollar’s future and shaky about its potential to be a stable force. This could strengthen gold’s value. Janet Yellen, however, announced that the Fed would not raise interest rates at this time. She did, though, indicate that a rate increase is possible before the year ends. In fact, indications are that the Fed will not increase interest rates until September at the earliest. The take-home for gold on this issue is a continuance of the status quo for now.

Greek Tragedy Positive for Gold

Some analysts—such as those at Capital Economics—believe that Greece’s growing financial crisis will be a positive indicator for gold’s stability and position. Even as Greece and its creditors continue to talk without making much progress, plans for the country to begin lending—or even selling—its hoard of gold seem to be unfounded, as noted by Quora. As the Mediterranean country marches ever closer to a catastrophic default, Greece could be even more influential to gold than the dollar itself. This speculation is backed by evidence such as the continued strong showing of gold at greater than $1,200 per ounce in spite of the dollar’s recent rebound. As Capital Economics notes, though, a Greek default at this stage would hardly be a surprise and attention would likely focus on the country’s exit from the European Union instead. Either way, economic disaster in Greece spells gains for gold.

IMF Unsure About Propping Greece Up Indefinitely

Christine Lagarde, chief of the International Monetary Fund (IMF), has stated the organization’s reluctance to offer Greece any further accommodations. According to the BBC, if the country does not meet its obligation to repay 1.5 billion Euros to the IMF by June 30, it will be in default without the possibility of a grace period. This sum is a combination of Greece’s four payments that are due throughout the month. In addition to its IMF debt, Greece also needs to find an additional 2.2 billion Euros to meet its obligations for payment of social security, salaries for the private sector and pensions. The entire world, including gold investors, is watching Greece right now, as they sink or swim.