(Kitco News) – Incrementum AG is still sticking with its $2,300-an-ounce longer-term forecast for gold, calling for this to be hit in the next two years.
In the 10th annual “In Gold We Trust” report Tuesday, authors Ronald-Peter Stoeferle and Mark J. Valek described the first quarter as the strongest period for gold in 30 years, with the metal emerging from a bear market that had been in force since 2013.
In particular, analysts cited ultra-low global interest rates, including negative rates adopted by some central banks in their effort to jump-start economic growth.
“Gold is increasingly attractive in this environment,” the report said. “It used to be said that gold doesn’t pay interest; now it can be said that it doesn’t cost interest.”
Furthermore, any moves to unleash so-called “helicopter money” into the economy likely will jump-start inflation, the report said.
Gold had been dinged the last few years by the perception the U.S. economy was recovering, thereby helping the U.S. dollar and leading to expectations of normalization of U.S. interest rates. However, the Federal Reserve hiked only once by 25 basis points back in December. And, said Incrementum AG, now it appears that the U.S. economic expansion may have run its course.
“We believe the time for investing in inflation-sensitive assets has come,” said the report, also describing mining stocks as “interesting opportunities.”
The annual report listed a long-term target of $2,300 an ounce back in 2008, when gold was trading around $800 an ounce. The metal got up to around $1,920 in 2011 after a decade-long bull run, before falling back below $1,100 late last year, then rallying again. Incrementum AG said it stands by its thesis that gold will rally, arguing that central bankers cannot create a “self-sustaining” economic expansion by printing money.
“According to our perception, the events of the past year are validating our views and we are maintaining our gold price target of $2,300 by June 2018,” Incrementum AG said.
Governments have undertaken “structural over-indebtedness” in many parts of the world, spending cuts are “illusory” and massive tax increases are seen as counter-productive, the report said. As a result, central banks have undertaken a monetary “all-or-nothing gamble.”
Meanwhile, actions by central banks have led to a “bubble” in interest-rate markets, decimating free-market price discovery, the report said. The authors describe interest rates as being at the lowest level in 5,000 years.
“When this bubble inevitably bursts, it will be abundantly clear how valuable an insurance policy in the form of gold truly is.”
Incrementum AG suggested a new recession is “inevitable” and there is even potential for “stagflation,” which is the combination of stagnation and inflation.
The authors said they would not be surprised if there is a short-term correction in the market.
“However, we don’t expect a very deep correction, since it appears as though many potential buyers are waiting on the sidelines, eager to buy dips,” the authors said. “Relative strength in silver and mining stocks gives us confidence as well. Positive seasonality in the second half of the year should also provide a tailwind. All in all, conditions for the new bull market to become firmly established appear to be quite favorable from a technical perspective.”
(Kitco News) – There was much less risk aversion in the world marketplace Tuesday, following two sessions of very rough trading waters. Safe haven gold prices saw some selling pressure on profit taking from the shorter-term futures traders, following the recent strong gains that pushed prices to a 27-month last Friday. Still, the gold market bulls are in firm near-term technical command. August Comex gold was last down $7.00 an ounce at $1,317.80. July Comex silver was last up $0.091 at $17.835 an ounce.
The VIX (volatility index) that is one measure of anxiety in the marketplace for stocks calmed to pre-Brexit readings Tuesday.
Most world stock markets rebounded Tuesday and U.S. stock indexes were solidly higher in afternoon New York trading. Other safe-haven assets–U.S. Treasuries and the U.S. dollar index also saw some selling pressure following their recent solid gains. The British pound and Euro currency have stabilized following their pounding taken after last week’s Brexit vote.
Many market watchers are still wondering if there is more Brexit-related selling pressure soon to come. Today’s market action could be just a pause before more Brexit-related market turmoil resumes. Ratings agencies, including Standard & Poors and Fitch, on Monday lowered their credit ratings for the United Kingdom.
(Note: Follow me on Twitter–@jimwyckoff–for breaking market news.)
Live 24 hours gold chart [Kitco Inc.]
Technically, August gold futures prices closed near mid-range. The gold bulls still have the solid overall near-term technical advantage. Gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at last week’s high of $1,362.60. Bears’ next near-term downside price breakout objective is pushing prices below solid technical support at last week’s low of $1,252.80. First resistance is seen at today’s high of $1,329.50 and then at this week’s high of $1,340.00. First support is seen at today’s low of $1,308.20 and then at $1,300.00. Wyckoff’s Market Rating: 7.5
Live 24 hours silver chart [ Kitco Inc. ]
July silver futures prices closed nearer the session high. The silver market bulls have the solid overall near-term technical advantage. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at $19.00 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $17.00. First resistance is seen at this week’s high of $17.94 and then at the May high of $18.08. Next support is seen at today’s low of $17.55 and then at $17.25. Wyckoff’s Market Rating: 7.5.
July N.Y. copper closed up 490 points at 217.10 cents today. Prices closed nearer the session high and hit a seven-week high again today. The copper bulls have gained the slight overall near-term technical advantage. A bullish “rounding-bottom” reversal pattern has formed on the daily bar chart. Copper bulls’ next upside breakout objective is pushing and closing prices above solid technical resistance at 225.00 cents. The next downside price breakout objective for the bears is closing prices below solid technical support at the June low of 201.30 cents. First resistance is seen at today’s high of 218.35 cents and then at 220.00 cents. First support is seen at 215.00 cents and then at today’s low of 211.85 cents. Wyckoff’s Market Rating: 5.5.
Fear is on the rise and so is the price of gold.
Gold futures for August hit a three-week high Thursday, rising to $1,272.70 per ounce, just under a key resistance level of $1,275. The yellow metal is up about 20 percent year to date, and some high-profile investors — like George Soros and Stanley Druckenmiller — have made no secret that they see bad times ahead in the markets and gold is a safer bet.
“As far as the geopolitical element, it’s certainly not a chicken little atmosphere,” said Jim Steel, chief commodities analyst at HSBC. “I think there’s enough uncertainty facing the global economy and even some geopolitical tensions to keep buying the gold market.”
Investors believing they need to have gold in their portfolio as a hedge against the outcome of easy central bank policies and for other safety reasons are fueling a run in the metal. Some analysts say gold could easily climb above $1,300 an ounce.
In fact, DoubleLine Capital CEO Jeff Gundlach likes it, and he says gold could go to $1,400. Soros has reportedly been buying both gold and gold mining shares, while Drunkenmiller told investors last month to get out of stocks altogether and buy the yellow metal due to concerns about China’s economy and the Fed’s easy money policies.
Analysts say there are a host of reasons investors are loading up on gold, and at some point later this year, the U.S. presidential election could be seen as one of them.
“I think that the you’ve got ‘Brexit’ coming at you. You have a Spanish election coming at you in a week and a half and that is terribly confusing. It looks like the left is going to win. You have rising nationalism in France. You have the strike in France. You have one thing after another,” said Dennis Gartman, publisher of The Gartman letter. Other worries include rising tensions with China in the South China Sea, and Nigeria where militants have shut down oil production.
Gold has also moved higher as the dollar pulled back, a phenomena helping other commodities. The greenback has weakened as the Fed’s forecast for rate hikes was rolled back to two this year from four. The metal got a lift after last week’s surprisingly weak May U.S. jobs report cast doubts on whether the central bank can raise rates at all this year.
“I think the key element more than any one geopolitical issue, even as much as the Fed holding off a spate of rate rises, is some economies moving into negative rates. That has been very good for gold. When you look at when the gold rally began it is very close to the issue of bonds with a negative yield,” said Steel. “If you look at all the economies that have a negative yield, they add up to a little over 27 percent of the world’s GDP. … Negative yields are a powerful cocktail for gold. They eliminate the opportunity cost of owning gold.”
Steel said the move into the metal has been steady, not an excited gold rush spiking prices. “Basically, the rally has been entirely investment led,” he said. That is opposed to a rally driven by physical demand, with buyers in the biggest markets — India and China — now less active.
“It’s kind of like having a table with a leg missing. It’s heavily investment led. I’d feel better with a longer-term rally if we had a physical component. It does present upside roadblocks further up,” he said.
One major catalyst for the rush into gold is the June 23 U.K. vote on whether to leave the European Union. Gartman said the move in gold is clearly tied to the referendum, as the euro is weakening against the safe haven Swiss franc, as well.
“The fact here is just a vote on Brexit, whether it succeeds or not, is not a good sign for the European Union,” said Jim Wyckoff, senior analyst at Kitco. He said Brexit is not expected to succeed, but if it did the fear is that the EU itself could begin to unravel.
“If the euro is going to go away you’re seeing people buy gold with euros as a safe haven play,” he said.
“If Brexit passes, what’s the next step? …The U.K. pulls away from the European Union. Are some of the periphery countries going to pull out? … That leads to the thought of what happens to the euro. Some people are going to take their euros and buy gold because buying gold today is there for down the road if the euro is no more,” he said. “That’s not mainstream but it’s something people are thinking about.”
Wyckoff said if gold breaks the $1,275 per ounce level, he next target is $1,308, its high for the year. That is a level that would bring in new buying and drive the yellow metal higher.
Steel said ETFs have been big buyers of gold this year. Year to date, all-ETF investment has risen by 12 million ounces, and now hold 52 million ounces. The SPDR Gold Trust ETF GLD is the largest.
Sydney Gold Traders: Oppps, that’s really not good new for us!
Diamond miners recently discovered a ship that went down 500 years ago after draining a man-made lagoon on Namibia’s coast. While shipwrecks are often found along Africa’s Skeleton Coast, this one just so happened to be loaded with $13,000,000 worth of gold coins.
It also answers a centuries–old mystery and is what some archaeologists are calling one of the most significant shipwrecks ever found.
The wreck was first discovered along the coast near Oranjemund by geologists from the mining company De Beers in April 2008. One reason it took centuries to find is because it was underneath the ocean floor.
Related: 19th century boat discovered underneath New Jersey home
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Gold coins and a cannon discovered in the Namibian shipwreck (Dieter Noli) ( )
“The mining site concerned was actually located in the surf zone, where the violent action of the waves theoretically made mining impossible,” archaeologist Dr. Dieter Noli told FoxNews.com. “So what the chaps do is push up a huge sea-wall with bulldozers parallel to the beach, with the ends running back to the beach. The result is a large man-made lagoon, with the surf pounding on the outside. Then they pump the sea-water out of the lagoon.”
It was in this drained lagoon that the wreck was discovered. Noli, who is chief archaeologist of the Southern Africa Institute of Maritime Archaeological Research, wasn’t too surprised– with the abundance of shipwrecks on the coast (Portuguese sailors once called it “The Gates of Hell”), he knew the geologists would turn up something sooner or later.
“Having first started doing archaeological work…for the mine in 1996, I had at that point been preaching to them for a dozen years that ‘one day’ they would find a shipwreck, and to let me know when they do,” he told Foxnews.com. “When asked what exactly I was really expecting to find, I said ‘a Spanish sword and a bag of gold.’”
Related: 16 divers died searching this shipwreck; now, a different approach
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A coin and rosary beads discovered in the Namibian shipwreck (Dieter Noli). ( )
A day after the discovery, the geologists notified Noli that they’d found some ‘strange stuff’ on the beach– bits of metal, wood, copper half-spheres and what looked like copper or bronze pipes. They emailed him an image of one of the “pipes,” which Noli immediately recognized to be a piece of 16th century artillery.
“I phoned [Chief geologist Juergen Jacob] back and told him that said pipes were in fact rather old breech-loading cannons. ‘How old?’ he wanted to know. ‘1535, give or take two months,’ I suggested. Since the ship wound up being from 1533, that was a pretty close guess!”
While there are plenty of shipwrecks in the area, almost all of them are “recent”– as in having sunk only in the last 120 years or so. The oldest shipwreck found in the area at that point was The Vlissingen, which went ashore in Meob Bay in 1747.
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A photo of the Namibian shipwreck site (The De Beers Group of Companies)
Upon his arrival to the site, Noli realized pretty quickly this new find would be the oldest one yet.
“Once [there], the copper half-spheres had me flummoxed,” he said. “But then I saw the wooden stock of a matchlock musket lying at my feet. Picking it up, I saw that the style of the stock – made to fit against the cheek, rather than against the shoulder – indicated that it was from the early century, matching the age of the cannons. Right then I knew that we had a ship from the early 16th century and that there would be a lot to find in very good nick, because if the stock of a musket survived, a LOT of other stuff would have done so as well.”
Related: Treasure trove found in ancient sunken cargo ship off Israel
Once they realized what they had on their hands, Noli went about trying to convince the Namdeb Corp. to let them work more on the site– no easy task, considering the huge cost of keeping the site dry for two weeks beyond the mining period and maintaining the sea-wall, which is a 24/7 job for two D-9 dozers, a fleet of trucks and some really huge pumps. In the end, he simply let the pictures of spoils from the dig do the talking.
According to Noli, “As luck would have it, we found the treasure chest on day six. Academic arguments are all very well, but once you have literally filled your hat with an 25.5 lb mixture of Spanish and Portuguese gold coins (there were indeed swords as well), the value of the site is no longer in doubt.”
The ship was identified as The Bom Jesus, or “The Good Jesus”, a Portuguese ship that went missing 500 years ago while en route to India. The ship was loaded down with gold, tin, ivory tusks, and 44,000 pounds of copper ingots when it apparently went to its watery grave. In fact, it was the copper ingots that ended up playing a key role in the wreck’s preservation.
“Marine organisms may like wood, leather book covers, peach pips, jute sacking and leather shoes, but copper really puts them off their food – so a lot of stuff survived the 500 years on the bottom of the sea which should really not have done so,” Noli said. “All this adds up to an extremely unusual situation, which led to truly excellent preservation of an in any event unique site.”
How the ship went down and what it was doing off a notorious stretch of coast famous for its storms and fog remains unknown, though Noli has his theories.
He believes that a combination of too much heavy cargo and poor weather made the captain decide to run the vessel ashore by putting out his bow anchors and slowly beaching her. The ship then hit a blinder in the surf zone, where she heeled over in the pounding waves. All attempts to free her failed and she broke up, starting with the superstructure.
“The treasure chest fell free from the captain’s cabin, sinking intact to the seabed, where it was subsequently crushed, pinned down and protected by a massive piece of the side of the ship which broke free from the disintegrating hull,” Noli theorized.
As for what it was doing off the coast, he’s hoping Portuguese records may shine some light on the matter.
Related: Experts plan effort to explore Captain Cook’s ship Endeavour in Newport Harbor
So who gets the gold?
“The Namibian government – every single coin,” he said. “That is the normal procedure when a ship is found on a beach. The only exception is when it is a ship of state – then the country under whose flag the ship was sailing gets it and all its contents. And in this case the ship belonged to the King of Portugal, making it a ship of state – with the ship and its entire contents belonging to Portugal. The Portuguese government, however, very generously waived that right, allowing Namibia to keep the lot.”
With the growing threat of renewed global instability, the former governor of the Bank of England said that gold could play an important role in a central bank’s official reserves.
Image courtesy of the Trades Union Congress
Lord Mervyn King, the head of the Bank of England from 2003 to 2013, made the comments in an interview with the Wold Gold Council — in its latest edition of Gold Investor, released Tuesday.
In particular, because of current market conditions, King said that he could understand why China’s central bank doesn’t want to be completely reliant on U.S. government bonds. He added that it is unlikely the U.S. would ever default on its debt obligations; however, he added that nothing is certain.
“I can understand why they feel that some proportion of their portfolio needs to be in gold,” he said in the interview. “There are plenty of big concerns that make it extremely reasonable to have assets in your portfolio that are not dependent on the goodwill of other countries.”
King also said that it could be important for other emerging-market central banks to increase their gold reserves and protect against rising inflation and the threat of hyperinflation.
“I can understand why holding gold would seem to be a sensible part of a national portfolio. Because there is clearly a need to take some precautions against an unknowable future,” he said.
On monetary policy, King said that he believes that central-bank action has run its course. His opinions on ultra-loose monetary policy are interesting as that was one of the tools he used during the 2008 finical crisis. He added that as head of the BOE, he led the charge for low interest rates and quantitative easing because it was the only way to boost much-needed liquidity into the market.
However, eight years after the crisis, he said those policies are becoming less effective and have outlived their usefulness.
“So monetary policy is not only meeting diminishing returns, but it’s making the ultimate adjustment even bigger. It’s taking us in the wrong direction,” he said.
He added that with monetary policy running its course, it is now up to governments to promote growth by adopting positive fiscal policies.
“All monetary policy does is to essentially buy a bit more time in the hope that policymakers will do the right thing. But we’ve bought eight years now and they still haven’t done what’s right,” he said. “Governments really have to do something to boost people’s beliefs in their future income, so they need to put in place a sustainable program of improving productivity over the next 10 to 20 years.”
Only a few days after it became clear that an interest-rate hike by the United States Federal Reserve in June is very unlikely it isn’t terribly surprising that gold is looking for a wide hole in the line to run through.
Even with a solid, if modest, assist from a softer U.S. dollar, gold in mid-afternoon is up only 40 cents. Silver is off a quarter of a percent.
The shying away from the rate rise helped equities the world over rise solidly today with Shanghai and the London FTSE experiencing smaller rises in choppy trading. The FTSE no doubt has an eye on the Brexit vote, which is now only 16 days off. Shanghai is off and unsteady in its direction due to concern over China’s debt problems.
It is no accident that the S&P 500 and West Texas Intermediate crude are trading simultaneously at their highest since last July. The S&P is up almost 0.40%. The Dow is up in the same range but the NASDAQ is only treading water due to weakness in the biotech arena, led by a 12% loss in Biogen, which disappointed on earnings.
There was light interest in the 10-year U.S. bond, the yield of which was down marginally. The dollar softened against the yen as well as the euro but most of that was the deflating factor on the heels of the perceived Fed stance on rates.
In any event, today is a risk-on trading day, as you can figure from the few lead paragraphs above.
“I think what we’re seeing globally right now is the dovish sentiment following Janet Yellen’s comments yesterday,” said Ryan Larson, head of equity trading, U.S., at RBC Global Asset Management in the U.S.
But, are we going to experience the gavel of the law of unintended consequences?
“The Fed has been facing a no-win situation for the past couple of years, but especially in the past six to 12 months,” wrote Matthew Barasch, strategist with RBC Dominion Securities. “On the one hand, the underlying economic data in the U.S. has been supportive of raising rates off of what would be categorized by most as emergency levels; on the other hand, global growth remains broken.”
What’s a mother to do?
Let’s take a quick look at the two graphs below. The first encompasses the FOMC meeting next week. The probability of a rate hike as of today, as measured by the CME action, is less than 2.00%.
It starts jumping again when we look at the lower graph, which is showing the probability for a hike come the late July meeting.
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Wishing you as always, good trading,