Silver prices | Why The Gold <b>Price</b> Rose $50 On Thursday June 19th | Gold <b>Silver</b> <b>...</b> |
| Why The Gold <b>Price</b> Rose $50 On Thursday June 19th | Gold <b>Silver</b> <b>...</b> Posted: 22 Jun 2014 11:07 AM PDT This article was submitted by Michael Lombardi, MBA, from Profit Confidential. Gold bullion rallied just under $50.00 an ounce yesterday…and nobody expected it. (Okay, maybe just me. In a single day yesterday, my portfolio went up by twice the amount the stock market has risen in all of 2014.) Going through all the major financial web sites, I read story after story yesterday on why gold was rising so fast. They were all wrong; just reporters grabbing at straws, trying to explain something they know very little about. As I started writing in these pages in 2014, inflation is becoming a real problem in America. Years ago, I started writing about how all this money the Federal Reserve is creating out of thin air would become inflationary. That's exactly what is starting to happen now. Why is the Fed starting to pull back on its money printing operation with the goal of being out of the money printing business by the end of this year? Why is the Fed telling us that after keeping interest rates near zero for years, by the end of next year, the federal funds rate will move up to 1.13% and by the end of the following year, it will move to 2.5%? In my opinion, we are being told this because the powers that be see inflation in the cards, and they are working on trying to curb rapid inflation before it happens. And if there is something gold thrives on, it is inflation. Even the manipulated government statistics are now pointing to inflation. The Bureau of Labor Statistics reports prices in the U.S. economy increased by 0.4% in May after increasing 0.3% in April. (Source: Bureau of Labor Statistics, June 17, 2014.) This increase in the Consumer Price Index (CPI) was the biggest since February of 2013. With this rise in prices, inflation in the past 12 months was 2.1%. If we assume that going forward, the new monthly norm for inflation will be 0.3%–0.4%, then in the next 12 months, we are looking at inflation of 3.6%–4.8%. Gold loves inflation, plain and simple! The more there is of a currency in a financial system, the higher the chances of inflation; and the velocity of money is a big part of that. Without getting too technical, the velocity of money is simply how many times one dollar is used in an economy. And the more that dollar is used, the greater the chance of inflation. As it stands, we see the velocity of money is sitting at its lowest level ever recorded. In the first quarter of 2014, velocity of money in the U.S. economy was 1.4. This means one dollar was used only 1.4 times. Back in the 1980s, the velocity of money was 3.0. (Source: Federal Reserve Bank of St. Louis web site, last accessed June 17, 2014.) Why has the velocity of money been so low? When the Federal Reserve started printing money in 2009 and giving it to the big banks in hopes they would lend it out to customers, the banks (being too worried about the U.S. economy) didn't lend the money out. Instead, they took the money and bought safe government bonds (as has been well documented in these pages). But finally, after five years, banks are loosening up and lending again. Last month, commercial and industrial loans at all commercial banks in the U.S. economy stood at $1.69 trillion. This was the highest amount in years. (Source: Federal Reserve Bank of St. Louis web site, last accessed June 17, 2014.) As the banks start lending, the velocity of money increases and that just brings more inflation. I have said it many times before: inflation in the U.S. economy is going to be a major problem. And after roughly five years, inflation is picking up. The perfect inflation storm is brewing as even the velocity of money picks up. Gold is the best hedge against inflation. That's why it's an important part of any investment portfolio. And those gold mining stocks…they are still looking very cheap. This article Why Gold Went Up $50 Yesterday was originally posted at Profit Confidential.  |
| Gold <b>Price</b> Not Overbought But Reverting To Its Mean | Gold <b>Silver</b> <b>...</b> Posted: 22 Jun 2014 08:58 AM PDT In this article, author and fund manager Frank Holmes from USFunds.com looks at the recent gold price action and puts it into perspective. The gold price was at record lows, in extremely oversold territory, only six months ago. Sentiment was extremely negative, so it's no surprise that price spike of this week consider gold in an overbought status right now. The key question which this article focuses on: "Is gold overbought?" Based on historical observations and the math of the markets, gold seems NOT overbought; it is simply reverting to its mean. This mean reversion has shown that eventually, both gold stocks and gold bullion will move back to their historical averages. From USFunds.com: Right now, as you can see from the chart below, gold stocks have seen a reversal to the long-term mean, but we are still waiting for gold bullion to do so as shown in the second chart.  gold stocks price oscillator between 2004 and June 2014  gold price oscillator between 2004 and June 2014 Similarly, for gold bullion to reach overbought territory it would need another 20 percent move, and for gold stocks to be overbought they would need another 30 percent move. There is always an emotional bias against gold, whether it is soaring high or dipping low, and that is why it's important to manage these emotions when positioning a portfolio. At U.S. Global Investors we look objectively at the action of both gold stocks and gold bullion by monitoring these long-term data points and paying attention to buy and sell signals based on the trend of mean reversion. Additionally, I remind investors that moderation is key when it comes to gold. Your exposure should be 5 percent to gold stocks, 5 percent to gold bullion, while rebalancing annually. Another reason that gold is moving is it's beginning its seasonal cycle, driven by cultural gold buying. The demand of gold reflected over the next several months and characterized by the purchase of the metal for cultural celebrations and religious holidays, I refer to as the Love Trade. If you look at the chart below, you will see that July marks the beginning of the Love Trade with the celebration of Ramadan.  gold price chart with historical patterns The Indian Festival of Lights comes after, followed by wedding season and, of course, Christmas. This seasonal pattern is one of the most powerful drivers for gold demand. Monitoring this pattern, while remaining aware of other fundamentals to gold, such as mean reversion and a prudent 10-percent portfolio weighting (5 percent in gold stocks and 5 percent in gold bullion, while rebalancing annually), are imperative to understand when investing in gold. These trends allow us to manage short-term swings, small or large, that usually cause more concern than they are truly worth in the long term. |
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