Gold Market Update for January 2013

$2000 Gold Knocking at the Door

The price of gold may have come under increasing pressure in past weeks with concerns that the Federal Reserve’s loose monetary policy may be coming to an end, but analysts have told CNBC that the precious metal can still break through the $2,000 mark in the long term.

“We’re in a very good situation. QE (quantitative easing) is going to go for six to twelve months.They are talking about $500 billion to $1 trillion more in the system,” Eugen Weinberg, head of commodity research at Commerzbank told CNBC Monday. Record low interest rates by central banks around the globe have resulted in negative real interest rates — when allowing for inflation. Traditionally gold has an inverse relationship to interest rates and is used as a hedge against inflation, which can occur as a result of monetary stimulus.

“So a very positive environment for gold,” Weinberg said. Longer term we forecast the prices to rise above $2,000.”

The persistently weak economy is now almost completely dependent on ultra-low interest rates.  Given that Fed is now the only significant buyer of Treasuries and mortgage-backed securities, any cessation of buying on either front will result in higher rates that will likely tip the economy back toward recession. The Fed has been absolutely clear that it will not tolerate GDP deceleration, or declines in stock and real estate prices.

Goldcore chart tracking the spot price of gold from August 2009 – August 2012 (Source: Bloomberg)

As a result, we can have a high degree of confidence that the buying will continue until there is a currency crisis that forces the Fed’s hand. In addition, the failure of the government to agree on deficit reduction means that there will be increasing amounts of debt issuance by the Treasury in the years ahead…which the Fed will have to buy. In light of this, recent declines in gold prices should be seen as a buying opportunity.

“I think there’s a high probability” gold could hit $2,000 this year, U.S. Global Investors CEO Frank Holmes says in a Jan. 7 CNBC interview. “If you look at mathematical models, gold is oversold, and any time it’s oversold by 15% over 12 rolling months, you usually get a rally of 15% to 20%.”

On the Fed: “Let’s just wait until it actually happens. … What you’re seeing from the government is this rhetoric comes out. However, they still will maintain negative real interest rates and the monetary base will expand. And as long as those two factors are driving it, then the price of gold will rise at higher levels.

“There’s still room for gold as a hedge,” State Street Global Advisors exec Hon Cheung tells CNBC in a Jan. 6 interview. “Don’t forget there’s still significant financial stressors out there. I think the fiscal cliff was a relief for the market, but we still have the U.S. debt ceiling coming up; the euro situation is still an ongoing concern for investors. … Over the long term inflation certainly will be a concern. We’re seeing interest from investors thinking of ways to hedge inflation. TIPS has been one of those, but gold actually has been quite an effective hedge as well. … For 2013, it’s going to be very, very volatile. If you see some of these uncertainties crystallizing you’re going to see some very good gains for gold.”

On $2,000 gold: “All it takes is another big blow up in the market and I think you’ll see gold rally very strongly.”

Precious metals have always been a safe haven for investing in uncertain economic times. Precious metals are assets that will never lose their value. They are not subject to systematic risks as fiat/paper money and hedge/protect your hard earned wealth against inflation and other threats of devaluation. Cornerstone Asset Metals was established to help guide investors safely in and out of the precious metals market.

Learn more about how buying gold and silver today is a smart move for your investment portfolio.

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