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Gold edged down early Friday, on track for its third week of declines as the US dollar strengthened and momentum traders continued to exit positions or go short.

Investors and dealers await the US CFTC commitment of traders figures due at 1930 GMT, after last week's data showed hedge funds and other big speculators decreased their long positions in gold to their lowest since the end of August. This is bullish from a contrarian perspective and shows that much of the short term speculative froth has been removed from the market.

The US GDP figures are released later today and they are expected at 1.9%. A weaker than expected number would benefit safe haven gold.

Fiscal-Cliff

Gold corrected in October as we anticipated and has fallen by 5.5% (in USD terms) from over $1,795.55/oz to a low of $1,699.65/oz It is too early to tell yet if the October correction is over. There would appear to be strong support at $1,700/oz and Asian physical demand is very robust down at these levels.

The physical bullion market was subdued in Asia overnight although there was some buying out of Japan. Trade was muted because of a public holiday in Indonesia, Malaysia and Singapore, but Reuters noted that dealers saw gold buying from Thailand.

Importantly, Chinese buying of gold, official and public, on dips is likely to be continuing.

Physical demand for gold bullion coins and bars in western markets remains subdued but smart money buyers continue to add to allocations. Gold and silver 1oz bullion coins from the Australian Lunar – 2013 Year of the Snake Coin Series are officially sold out at The Perth Mint. The sell out of the full mintages of 300,000 pure silver 1oz coins and 30,000 pure gold 1oz coins was achieved in just two months, ranking this release as one of the fastest selling behind the phenomenally successful Year of Dragon coins in 2012.

With gold having pierced slightly below $1,700/oz there is a risk that gold could fall to test the 200 and 100 day moving averages which are now at $1,663.30/oz and $1,664/oz respectively.

A rise of over 1% today (from the current price of $1,705/oz) would result in a higher close this week, above $1,721.75/oz. This would be a good indicator that the recent dip is over and it is time to get into position for November, which is one of gold’s strongest months and the November to March rally which is one of gold's strongest periods. A lower close this week could see further falls next week and in early November.

As ever it will be nigh impossible to pinpoint the exact price lows.

The low of $1,699.65/oz seen two days ago on Wednesday may mark the intermediate low however gold could continue falling until October 31st (next Wednesday) as month ends often mark intermediate lows or could even continue falling until the US election or soon after.

There are now 6 trading days left until the US Presidential election on November 6th. The US election has many investors on the sidelines.

Gold will be supported by and likely see gains into yearend due to the coming uncertainty surrounding the US “fiscal cliff.” Tax increases and spending cuts are expected which would sink the US economy into a deep recession or Depression. If US Congress cannot agree on a deal by the end of the year it could have deleterious effects on the dollar and on capital markets.

The US elections themselves are unlikely to have a significant impact on currencies and wider markets in the short term but we expect the recent calm may recede and the stormy volatility of recent years may again be seen soon after the election when the reality of the appalling US fiscal and monetary situation is realised.

November is traditionally one of gold's strongest months.

Given the extremely bullish fundamentals due to negative fiscal outlooks, ultra loose monetary policies, negative real interest rates and global currency debasement, we expect this November and year end to be very positive for gold and particularly still undervalued silver.

Prudent buyers should now be buying this dip by cost averaging or getting into a position to do so. While gold may correct by another 2% or 3% from here, there is a greater likelihood of gold beginning to rise sharply and quickly recovering the 5.5% loss seen this month in November.

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The Federal Reserve on Wednesday provided a slightly more upbeat view of the economy but said it had decided not to scale back the aggressive steps it took last month to stimulate a still-sputtering recovery.

Fed policymakers announced no change in policy and no new action at 2:15 p.m. ET, after a two-day meeting in Washington, D.C.

To continue its efforts to help push down mortgage rates, the Fed reiterated it will buy $40 billion a month in government mortgage-backed securities until there are signs that the job market is improving significantly.

And Fed policymakers again said they plan to keep short-term interest rates near zero until at least mid-2015 — a timetable the Fed extended last month from late 2014.

In a statement after the meeting, the Fed said the economy has continued to expand at a "moderate pace in recent months," echoing the view it said it held last month. And despite September's surprising drop in the jobless rate to 7.8% from 8.1%, the Fed repeated that unemployment "remains elevated."

On the bright side, the Fed said "household spending has advanced a bit more quickly." Last month, it simply said spending "has continued to advance." Retail sales rose briskly last month across a broad range of categories.

However, the statement was a bit more downbeat about business spending, saying growth "has slowed." It previously said growth "appears to have slowed."

Economic reports generally have been more positive since the Fed launched a third round of government bond purchases on Sept. 13 to bolster the recovery. The Commerce Department said Wednesday that new homes sales in September rose 5.7% to the highest level since spring 2010, solidifying confidence in a burgeoning housing recovery. And manufacturing activity, retail sales and consumer confidence all strengthened in September.

But businesses have pulled back on spending and disappointing third-quarter corporate earnings have pummeled stocks the past week.

The Fed's mortgage bond buying program marks the first time Fed policymakers have made an open-ended commitment to buy government bonds, signaling an unprecedented level of support for the halting recovery.

Since the Fed's Sept. 13 move, rates on 30-year mortgages have fallen to 3.37% from 3.55%. Mortgage applications, particularly refinancings that give consumers more spending money, surged initially but have fallen in recent weeks.

The Fed action also was intended to spur investors to move money from bonds to higher-risk stocks, driving up stock prices and making consumers feel wealthier so they'll spend more. Back in Sept. 13, the Dow Jones Industrial Average jumped about 200 points, or 1.5%, immediately after the Fed action, but has fallen more than 400 points the past week on weak earnings and bleaker profit outlooks.

The mortgage bond-buying initiative supplements a Fed program to buy $45 billion in long-term Treasury bonds each month and sell a similar amount in short-term bonds until year's end. That program, known as Operation Twist, is also intended to lower long-term interest rates.

The Fed indicated it could launch additional asset purchases if the labor market doesn't pick up substantially. Deutsche Bank Chief Economist Peter Hooper says the Fed likely will decide to buy $25 billion to $45 billion a month in additional Treasuries when Operation Twist ends in December, in addition to continuing the mortgage bond purchases.

Economist Paul Ashworth of Capital Economics says the Fed might defer such a move to see if a divided Congress is able to soften the impact of a package of year-end tax hikes and spending cuts that could hobble the economy.

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Gold futures fell to a six-week low as the dollar’s advance curbed demand for the metal as an alternative investment. Palladium tumbled the most since March.

The greenback rose for the fourth straight session, the longest rally in five months. The euro dropped as Spain’s economy contracted for the fifth straight quarter and French industrial confidence fell to the lowest in more than three years. Gold has declined 4.1 percent this month.

“Spain continues to drive the direction of the market, and people are moving toward the dollar and staying away from riskier assets,” Fain Shaffer, the president of Infinity Trading Corp. in Medford, Oregon, said in a telephone interview.

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Gold futures for December delivery fell 1 percent to settle at $1,709.40 an ounce at 1:48 p.m. on the Comex in New York. Earlier, the price touched $1,705.10, the lowest for a most- active contract since Sept. 7.

On the New York Mercantile Exchange, palladium futures for December delivery plunged 4.6 percent to $593.85 an ounce, the biggest drop since March 22. Earlier, the metal touched $590.40, the lowest since Aug. 17.

Platinum futures for January delivery fell 2.3 percent to $1,575.60 an ounce. The price dropped as low as $1,573.70, the cheapest since Sept. 7.

Silver futures for December delivery slid 1.4 percent to $31.793 an ounce on the Comex. The price touched $31.65, the lowest since Sept. 4.

In 2012, silver has climbed 14 percent. Platinum has gained 12 percent, and gold has advanced 9.1 percent. Palladium has dropped 9.5 percent.

Today, the Standard & Poor’s GSCI Spot Index of 24 raw materials, which includes gold and silver, erased this year’s gain.

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What Will the Price of Gold Be in January 2014

Tuesday, 23 October 2012
Published in Gold Investing
Tagged under

While many at Casey Research don't like making price predictions, and certainly ones accompanied by a specific date, it's hard to ignore the correlation between the US monetary base and the gold price.

That correlation says we'll see $2,300 gold by January 2014.

There are plenty of long-term charts that show a connection between gold and various other forms of money (and credit). Most show that one outperforms until the other catches up. But let's zero in on our current circumstances, namely the expansion of the US monetary base since the financial crisis hit in 2008.

You can see the trends are very similar. In fact, the correlation coefficient is an incredible +0.94.

Since the Fed has declared "QEternity," it's logical to conclude that this expansion of the monetary base will continue. If it grows at the same pace through January 2014, there is a high likelihood the gold price will reach $2,300 at that point. That's roughly a 30% rise within 15 months.

And by year-end 2014, gold could easily be averaging $2,500 an ounce. That's 41% above current prices.

Some may argue that there's no law saying this correlation must continue. That's true. And maybe the Fed doesn't print till 2014. That's possible.

But it's not just the US central bank that's printing money…

  • European Central Bank (ECB) President Mario Draghi has declared that it will buy unlimited quantities of European sovereign debt.
  • Japan's central bank is expanding its current purchase program by around 10 trillion yen ($126 billion) to 80 trillion yen.
  • The Chinese, British, and Swiss are all adding to their balance sheets.

The largest economies of the world are all grossly devaluing their currencies. This will not be consequence-free. Gold and silver will be direct beneficiaries –along with mining companies– starting with rising prices.

There are other consequences, both good and bad, of gold hitting $2,000 and not stopping there. We think investors should be prepared for the following:

  • Tight supply. As the price climbs and attracts more investors, getting your hands on bullion may become increasingly difficult. Delivery delays may become commonplace. Those who haven't purchased a sufficient amount will have to wait in line, either figuratively or literally.
  • Rising premiums. A natural consequence of tight supply is higher commissions. They won't stay at current levels indefinitely. Premiums doubled and more in early 2009, and mark-ups for silver Eagles and Maple Leafs neared a whopping 100%.
  • Swelling profits for the producers. If margins on gold production average $1,000 per ounce now, what will earnings be like when they average $1,500? At $2,000? Gold can rise much faster than operating costs, so this could happen. Imagine what this could do to dividend payouts, especially those tied to the gold price and/or earnings.
  • Tipping point for a mania. There will be an inflection point where the masses enter this market. The average investor won't want to be left behind. Will that happen when gold hits $2,000? $2,500?

The message from these likely outcomes is to continue accumulating gold – or to start without delay. Waiting will have consequences of its own.

People say that there's nothing certain in life except death and taxes. In my view, $2,300 gold is a close second.

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Friday marks the 25th anniversary of the Wall Street crash known as Black Monday, and U.S. financial markets are not much safer from a similar event that could lead to major losses for investors.

On Oct. 19, 1987, the Dow Jones Industrial Average fell 508 points to 1,738.74, or 22.6 percent, the largest daily percentage loss for the index--that's roughly equal to the Dow falling 3,000 points today. A record was set at the time of over 600 million shares traded.

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At the time, Ronald Reagan was president, the Cold War was in full swing and Americans feared the U.S. economy was softening after a strong run-up. Academics have a variety of theories of what caused the major stock sell-off that day, including an over-reliance on automated computer trading and skittish investors.

Today, the majority of trading is computer-driven.

Before Black Monday, investors feared that the growing U.S. trade deficit, blamed in part on Japanese exports, would lead to a further decline in the nation's manufacturing sector.

"Something that minor pales in comparison to economic issues today," said Jim Sinegal, director of financial services research for investment ratings firm, Morningstar. "The Europe situation is somewhat unresolved. Something of that nature could definitely cause a panic among investors."

While some stocks like Apple (NASDAQ: AAPL) are near all-time highs, the major averages all all down this week.

Scott Brown, chief economist with Raymond James, said a number of uncertainties, including the U.S. election and the fiscal cliff are other uncertainties for investors.

"The Fed is doing already everything it can and fiscial policy is dead in the water with lawmakers discussing reducing the budget deficit rather than providing any stimulus at this point," Brown said.

Jason Weisburg, managing director of Seaport Securities Corp., said investors are no more protected from a similar panic than they were 25 years ago.

"You're always at risk when you're in equities," Weisburg said. "It doesn't matter whether you have humans or computers. There's an inherent risk in owning stock."

After the 1987 crash, maximum daily trading limits and circuit breakers were established by the stock exchanges to help cushion volatility and halt trading where's there's a flood of sell orders.

But stocks have had major movements due to faulty computer trading since then.

During the Flash Crash on May 6, 2010, the Dow dropped 1,000 points in minutes.

On Aug. 1 of this year, Knight Capital Group trading company lost $764.3 million due to a faulty computer program that led to a wave of erratic trades.

Weisburg said the best way investors mitigate risk from fluctuating markets and panic is by carefully diversifying your portfolio.

"They can hedge their portfolios with the myridad of products that are out there today," Weisburg said.

But he adds, "never say never."

When asked if U.S. regulators have assisted in safeguarding the U.S. economy or financial markets, Weisburg said they are "well intentioned but we're now in an overregulated environment."

"I think some of their actions have been helpful but some of them are misguidead, and they're reactionary and not proactive," he said.

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Long term gold price targets get more and more optimistic with some respected analysts seeing $10,000 gold ahead - this may seem unlikely but only a few years ago $1,000 gold seemed out of sight!

A remark on another website by Mark O'Byrne caught my eye - "Longer term, respected analysts are calling for gold prices above $5,000/oz and much higher forecasted prices such as between $5,000 and $10,000 per ounce are not raising eyebrows as much as they have in the past." Indeed with even many of the ultra-conservative bank and fund analysts suggesting that gold will reach $2,000 or even higher within the next year, or even the next few months, certainly $5,000 or even $10,000 should not seem out of sight in some unspecified timeframe."

Fiscal-Cliff

If one tracks the price of gold during its current bull run it has risen around 600 percent in 13 years - at the same pace of increase it could thus reach $12,250 in another 13 years - or by some time in 2025! Thus is it ridiculous to suggest that this huge valuation on an ounce of gold is achievable? Never say never! When I started managing and writing for Mineweb back in 2006 even $1,000 looked completely out of sight and people like Rob McEwen who then were predicting that level were perhaps considered at the extreme end of the spectrum. Yet within 3 years the $1,000 level was achieved and now it is a further 75% higher than that a further three years on. Nowadays, McEwen is predicting $5,000 gold - should that still be considered over extreme?

The big question obviously is how long the bull run will continue. There are those who reckon that gold is in a bubble - perhaps it is. But bubbles can increase enormously in size before they pop and gold could still be in the early stages of this, and unlike a bubble it is never seriously likely to return to the starting point of its huge rise. The gold price has expanded in a direct relationship with money supply growth (which suggests that it is, in reality, only moving counter to the decline in currency values caused by currency printing.

Take Ben Bernake's famous quote of 2002 "Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."

Even though he may have seemed to have been against it at the time, that is precisely what Bernanke has done. He has effectively devalued the dollar through QEs 1-3 so it cannot be seen as surprising to anyone that the gold price has risen against the dollar - or conversely that the dollar has fallen in value against gold. Bernanke is a good economist and he sees the only way of getting the U.S. out of its enormous debt crisis, and ward off deflation, is ultimately to inflate its way out of the problem in a controlled manner - however long it takes and regardless of any unintended consequences - or unknown unknowns as Donald Rumsfeld would have called them. The real question is can he continue to manage the downgrading of the dollar without the U.S. economy descending into hyperinflation, while at the same time pretending he isn't doing that to try and preserve some semblance of value for the greenback vis a vis the other major currencies?

Perhaps luckily for Bernanke, those Central Banks controlling most of the currencies against which the dollar is valued on the markets have followed suit and are doing precisely the same thing. So the dollar index is not falling against its peers, but the dollar has been falling against gold, perhaps the one monetary unit out there which can show the true picture (in theory as long as the gold price in dollars is itself not being manipulated to make things look better than they actually are).

Governments don't like gold because it shows up their economic policies for what they are and defines the devaluations of their currencies in a way no other measure can. There are those who believe that governments, central banks (however independent they may be in theory) and their banking allies combine to suppress the gold price to muddy the waters in this respect - and, as we have pointed out here given that governments manipulate currency parities to suit their economies (note the Chinese, Swiss and Japanese among others), if gold is viewed as a currency then there's no reason why this should not be manipulated to the presumed advantage of the Central Banks too.

But there's only so much governments can do - hence the seemingly inexorable rise in the gold price over the past decade - a rise that is likely to continue in the years ahead - so again $10,000 gold has to remain a possibility however unlikely this may seem at the moment - not in the next few years perhaps - but at some time in the future.  Never say never.

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The number of people seeking U.S. unemployment benefits plunged last week. But a big reason is that automakers skipped some of their usual summer shutdowns to keep up with demand, leading to fewer temporary auto layoffs.
 
Economists expect the number of Americans seeking unemployment aid to go back up in coming weeks
 
The auto industry's recovery has helped support the struggling U.S. economy. Sales of new cars and trucks surged in June. Automakers also began Independence Day promotions early, lifting sales at the end of the month.
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The budget deficit grew by nearly $60 billion in June, remaining on track to exceed $1 trillion for the fourth straight year.

Through the first nine months of the budget year, the federal deficit totaled $904.2 billion, the Treasury Department reported Thursday. Read more...