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Gold defying Fed to target $1,400

Blanchard VP predicts breakthrough in next 30 days

Blanchard Economic
Research Unit

EXPERT INSIGHTS FROM:

Donald W. Doyle, Jr.
Chairman and CEO

David Beahm
Vice President

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Jobs picture worsens

After weekly U.S. jobless claims rose to their highest level since July 19, gold jumped above $1,375 early Thursday, continuing to shake off the implications of the Federal Reserve’s July minutes, released Wednesday, which confirmed possible tapering in September. “You would expect that after the minutes, the gold price would be slightly lower, but this is not what is happening,” Credit Suisse analyst Karim Cherif marveled. In contrast, the Dow posted its sixth-straight down day Wednesday, and 10-year Treasury yields were soaring to two-year highs. “You have to have forgotten how every other crisis has ever come about to get yourself to sell your gold here and jump on the stock bandwagon,” said Edmond Bugos of Strategic Metals Research. Read more

“Gold always moves upwards in August”

Though tapering talk kept gold from breaking through stiff resistance at $1,380, its grip above $1,350 could be a sign of robust consolidation in preparation for the next move up. After all, “historically, gold always moves upwards in August,” Blanchard and Company Executive Vice President David Beahm told MarketWatch. “Even though gold has fallen 30% since its all-time high, the metal is up over 15% since its lows earlier this year,” he said. Gold could top $1,400 in the next 30 days, he said, as India’s festival buying season gets under way. Read more

Some Fed doves urging tapering caution

So what did the Fed minutes say? “Almost all participants confirmed that they were broadly comfortable” with the Fed moderating “the pace of its securities purchases later this year. … A few members emphasized the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases.” Read more

Don’t let inflation “overheat,” Fed exec warns

One Fed hawk spelled out the risks of continuing stimulus in public comments Sunday. The larger the Fed’s balance sheet grows, “the greater the risks of us getting it wrong, and getting the timing wrong, and getting the exit process wrong, and letting inflation overheat and rise too much,” Richmond branch chief Jeffrey Lacker said. Of course, with its balance sheet nearing $4 trillion, the Fed already faces inflationary risks. And it’s important to remember that tapering simply means reducing asset purchases from $85 billion a month, not ceasing them entirely. Read more

Tapering critic warns of premature exit

Conversely, what if the Fed stops its quantitative-easing (QE) stimulus program too early, only to have to restart on new signs of a recession? “The risk of reducing QE is higher than maintaining the current program because the negative impact would multiply if the Fed cut too soon, and had to revert back to the current bond-buying schedule,” wrote LandColt Capital exec Todd Schoenberger. Read more

Gallup poll: Unemployment rockets to 8.9%

With the Fed’s next policy meeting Sept. 18, the Bureau of Labor Statistics’ August employment report will be key to determining its tapering plan. Don’t look now, though: Bad news on the jobs front has come from a major polling organization. “Gallup is showing a sizable 30-day jump in the unemployment rate, from 7.7% on July 21 to 8.9% today. This is an 18-month high,” Breitbart reported. “Gallup’s upward trend to almost 9% in just the last three weeks is alarming, especially because this is not a poll with a history of wild swings due to statistical anomalies.” If the next jobs report from BLS mirrors Gallup’s, the move to taper will have hit a speed bump. Read more

“Holding too much U.S. debt is not wise”

But some major Treasury investors aren’t waiting for tapering: They’re getting out now. Bond sales led by our biggest creditors, China and Japan, “were part of $66.9 billion of net sales by foreigners of long-term U.S. securities in June, a fifth straight month of outflows and the largest since August 2007,” Reuters reported. “Holding too much U.S. debt is not wise at a time when Treasury yields rise and prices fall,” said one Chinese economist. And it’s not just Asians selling. “Investors have yanked nearly $20 billion from bond mutual funds and exchange-traded funds so far in August. That’s the fourth highest pullback ever,” CNN noted, while June withdrawals were “the highest on record.” Read more

Fed’s bond holdings balloon above $2 trillion

Meanwhile, the Fed’s own Treasuries portfolio “pushed above $2 trillion for the first time last week,” CNS News reported. Since the Fed began QE in late 2008, its “holdings of U.S. government debt have more than quadrupled.” Contrarian economist Marc Faber warned CNBC earlier this month that “the Fed has lost control of the bond market, and this is very important.” If the Fed isn’t the buyer of last resort, who else is going to buy our debt? Read more

10-year yields a canary in the coal mine

Why are bond yields important? “A healthy flow of credit is absolutely essential to the debt-based system that we live in,” wrote Michael Snyder of The Economic Collapse blog. “If interest rates continue to rise rapidly, it will be more expensive for the U.S. government to borrow money, it will be more expensive for state and local governments to borrow money, the housing market may crash again, consumer debt will become more expensive, junk bond investors will be in for a world of hurt, the stock market will experience a tremendous amount of pain and there is a good chance that we could see the $441 trillion interest rate derivatives bubble implode. And that is just for starters.” Read more

Poll sees gold at $1,450 by year’s end

The exit from stocks and bonds means capital has to go somewhere, and during the 2008 crisis, it went into gold. The price could reach $1,450 by the end of 2013, according to a median of estimates in a survey of 11 traders, jewelers, and analysts at this month's India Gold Convention. “The fact that the market has done so well and technically moved above $1,350 an ounce is very positive,” said Jeffrey Rhodes of the Kaloti Jewellery Group in Dubai. “This suggests quite a strong end to the year.” Read more

“If you’re scared enough, you don’t care what you pay”

Will India’s restrictions on the gold trade dampen demand there? Not with the rupee’s value collapsing and its central bank announcing a QE program of its own, said JPMorgan analyst John Bridges: “One of the key attractions of gold [is] it is a currency which is nobody else’s liability, and so if you have a situation where are you scared about where your currency is going, you want to buy gold. And if you’re scared enough, you don’t care what you pay. … I suspect we have a similar situation in India.” Read more

Gold-buying surge “prominent” in Asia

Indeed, last week’s Gold Demand Trends report from the World Gold Council suggests that physical buying in Asia will remain robust. “Gold coming onto the market from ETF sales met with a wave of demand for bars and coins, as well as jewelry,” managing director Marcus Grubb noted. “This surge … has been particularly prominent in the world’s biggest gold markets, India and China.” Read more

Is Asia sucking gold from Great Britain?

A huge uptick in Britain’s gold exports to Switzerland supports Grubb’s argument. “The UK does not have gold mines, so where has it all come from? The obvious source is the gold exchange-traded funds (ETFs), most of which hold their gold holdings in London vaults, and which saw huge outflows in 1H 2013,” Australian bank Macquarie said Monday. “The gold bars from ETFs have gone to Switzerland, where most of the world’s gold refining capacity is, to be remelted into different size bars and coins and then sold on end consumers, predominantly in Asia, specifically China and India.” Read more

China’s mining takeovers hit record heights

China also is continuing to target primary sources of gold: that is, mines. “Acquisitions by China’s gold mining companies reached a record this year as the metal’s steepest quarterly drop in more than nine decades slashes mine values and sidelines Western rivals laden with debt. Takeovers and asset purchases by producers based in China and Hong Kong rose to a record $2.24 billion this year,” Bloomberg reported. Read more

Gold ETFs showing “nascent reversal”

In the gold ETF sphere, outflows appear to be slowing, and that could combine with huge physical demand to power a major price reversal this fall. “The reason for the big drop in gold primarily was large-scale selling out of exchange-traded funds,” mainly the GLD, said Ric Spooner of CMC Markets. “I think those big ETF outflows have finished for the moment.” Adam Hamilton of Zeal Research agreed: “GLD is already seeing signs of a nascent reversal. As gold climbs for other reasons and general stocks fall, capital is going to come flooding back into GLD. This differential buying pressure will be shunted into underlying gold bullion, amplifying gold’s upleg.” Read more

Experts predicting second-half gold comeback

A Bloomberg analysis out Thursday is headlined: “Gold rout seen bottoming by analysts as China buys.” The following experts also are bullish on gold’s second-half finish:

Bank of America Merrill Lynch: Global technical strategist MacNeil Curry said he’s “looking for a move up to the $1,410, potentially $1,450 area.” He presented the three reasons behind that prediction: 1) The downtrend was overstretched; 2) other precious metals like silver are confirming the gold bounce; and 3) unwinding of gold positions has subsided. Read more

Encompass Fund: “Typically, when everyone hates an investment, I am completing due diligence and am buying that investment,” said Malcolm Gissen. “Right now it is challenging for me to find an investor who is bullish on any major metal.” He added: “The market is ripe for big gains in metals.” Read more 

Gartman Letter: “The gold bear parade had gotten a bit overcrowded,” Dennis Gartman said. “Gold had reached some technical levels that I found interesting, but more important, it had reached a level of psychological bearishness that pushed me off the sidelines, off from being bearish of gold, to being bullish.” Read more

Gold Newsletter: “Gold has given us a few head fakes earlier this year, with apparent bottoms that just turned into another step down on the stairs,” said Brien Lundin. “But this really feels like a bottom for a number of reasons. … A metals investor needs to seriously consider buying at these levels.” Read more 

JPMorgan: “There’s typically some positive seasonality to the gold price in August/September,” analysts John Bridges and Anant Inani wrote. “We’d encourage shorter-term investors to consider getting long the gold space with a four- to five-week time horizon. … China and India remain large physical buyers of the metal. We believe this highlights that enthusiasm for the metal remains strong amongst the majority of the world’s population.” Read more

LOGIC Advisors: “The worst of the liquidation is over,” predicted Bill O’Neill. He said $1,425 “would be the next level that you would look at. ... The market has much better tone that it did a month or two months ago.” Read more

McEwen Mining: “I think we’re going to start seeing gold running in the last quarter of this year,” Rob McEwen said. Since about 2012, gold has been “experiencing a correction/consolidation within a long-term uptrend.” Read more

Sprott USA: “We’ve seen a move from weak hands, that is, leveraged long futures buyers, to strong hands, basically individuals unleveraged buying for cash in the physicals market, and I think the physicals market has begun to overcome the futures market,” Rick Rule said. Read more

Tocqueville Gold Fund: “The rationale for being in gold is the prospect of monetary debasement,” John Hathaway observed. “It was ridiculously oversold.” On tapering: “Tapering is just like kissing your sister,” he said. “It just seems to me very unlikely that an action can take place without a substantial collateral damage in the financial markets, and I think that’s the real reason to own gold.” Read more

Silver’s meteoric comeback “a good sign”

Despite gold’s recent gains, the yellow metal has been overshadowed by silver. “The fact that silver has been able to outperform gold could be a good sign,” MarketWatch noted. “Silver is more volatile than gold and is generally very closely correlated to gold so if it is moving more aggressively when both are heading higher, then it’s a signal that a classic bull move is in place,” said Brien Lundin. Read more

“Big money” banking on rare coins

And when gold’s bull moves hit their stride, rare coins can move exponentially higher. The recent fall in gold prices has “revived interest in coin collecting, said some dealers at the American Numismatic Association’s World’s Fair of Money held this week in suburban Chicago,” according to a report at Forbes. “The big money is spending like they haven’t in the past five years,” one dealer commented. Bullion investors can establish a profitable position in rare coins while also diversifying their overall hard-assets portfolio. Let us show you how. Call Blanchard and Company’s Account Executives at 1.866.629.2281 to stake your claim today. Read more

 

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