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Metals Market Report Weekly Archive
 

The Mike Fuljenz Metals Market Report

April 2018 - Week 2 Edition

Gold Up Nearly 3% in 2018

Gold rose $8 last week and is up nearly 3% for the year while the Dow Jones index is down 3% for the year through last Friday. Since Y2K, gold is up 3.3 times more than the Dow and 4.7 times more than the S&P 500. Gold continues to rise every time the President proposes new tariffs against China, raising fears of a new trade war. These announcements also tend to send stock prices down. Also, the World Gold Council just announced that North American gold-backed ETFs saw 21.5-tons of net inflows for March.

Congressman Alex Mooney Introduces a Bill Demanding a New Gold Standard for America

In the March 26 Wall Street Journal, Congressman Alex Mooney (Republican from West Virginia) wrote an editorial in favor of the gold standard.  His headline couched it in terms of the recent tariffs on steel and aluminum announced by President Trump: “Steel and Aluminum? Let’s Talk About Gold.” In that editorial, he claimed that “fiat money” (paper money created by the fiat of the printing press) is hurting his West Virginia constituents more than imported steel, aluminum or any other imports into America.

And now Representative Mooney has followed up with a dramatic action on the House floor, introducing a bill to re-establish the Gold Standard in America, a bill that would define the dollar as a fixed weight in gold and, in the process, require a full accounting of U.S. government gold holdings, and mandate that the Federal Reserve make U.S. dollars convertible to gold.  Mooney and his supporters say that this would help stabilize the U.S. and global monetary system while protecting savers, workers, and investors from current and future inflation. If enacted, the bill would order the Secretary of Treasury to define the U.S. dollar as an amount of gold and it would also order all Federal Reserve Banks to make Federal Reserve notes (dollars) exchangeable for gold at the statutory gold definition of the dollar. Mooney’s bill states:

“American families need long-term price stability to meet their household spending needs, save money, and plan for retirement…The Federal Reserve’s trickle down policy of expanding the money supply with no demand for it has enriched the owners of financial assets but endangered the jobs, wages, and savings of blue collar workers…The American economy needs a stable dollar, fixed exchange rates, and money supply controlled by the market not the government…The gold standard puts control of the money supply with the market instead of the Federal Reserve.... Restoring American middle-class prosperity requires change in monetary policy authorized to Congress in Article I, Section 8, Clause 5 of the Constitution.”

Practically speaking, the bill is unlikely to pass, but it has some moral support in the White House. Both President Donald Trump and Vice President Mike Pence are on record favoring a gold standard.  During the campaign, candidate Trump said, “Bringing back the gold standard would be very hard to do, but, boy, would it be wonderful.” With gold, Trump said, “we'd have a standard on which to base our money.”  A new gold standard would probably usher in a new gold bill market!

More Analysts are Backing Gold in the Current Environment

With stocks and bonds sagging and gold holding firm, more mainline analysts are showing support for gold.  Stocks are down about 3% year-to-date and bond yields have been low and flat since mid-March, so these mainstream analysts are looking for some alternative sources for profits for their clients in 2018.

Bill Baruch, president of Blue Line Futures told CNBC’s “Fast Money” that gold will “have a big second half of the year. I expect it to break out above $1,400 sometime before August or September…The dollar's going to be a catalyst and now the trade war can also be a big catalyst.”  He said he is “extremely bullish on gold” and “bearish” on the U.S. dollar. “The dollar is unwinding the entire 2014 rally,” he said.

Jeffrey Gundlach, CEO of DoubleLine, the man known as the current “Bond King,” commented on the financial cable TV giant CNBC that the trend is down for the dollar, up for gold and sideways for 10-year yields.  He said that all three assets are inter-related and all three should renew their longer-term trends.

Eugene King of Goldman Sachs said recently that “there are only 20 years of known mineable reserves of gold …. The combination of very low concentrations of metals in the Earth’s crust, and very few high-quality deposits, means some things are truly scarce. Perhaps unsurprisingly, these are the so-called precious metals (and diamonds), and that their value is derived from the fact they are rare. Their relatively scarcity, and the market’s belief that new discoveries will be limited, is what drives the price of these super rare commodities…Gold has been used as a measure of wealth for more than 4,000 years….”

Larry McDonald, editor of the Bear Traps Report, is also bullish on gold as investors turn their backs on bonds, a traditional first-choice as a safe haven when stocks sell off.  He says that a multi-decade bull market for bonds (whose prices rise as rates fall) is coming to a close at a time when government debt is reaching new records. “That's going to create a flight of capital out of bonds, out of equities, and into alternatives like gold. I'm extremely bullish at these levels,” said McDonald.

Stephen Pope, managing partner at Spotlight Group, said that rising U.S. debt levels could very rapidly make gold the most appealing asset for investors.  Gold is highly correlated to U.S. debt levels, he said. With the federal debt already at $21 trillion, he says “The U.S. government is under pressure to close the fiscal deficit and yet the U.S has started walking down a path leading to a trade war with China and Europe. At the same time the Treasury announced plans to borrow nearly $1 Trillion this fiscal year.”

Gold Miners and Metals Analysts Agree: Gold is Poised for a Big Rally

The UK’s precious metals consultancy Metals Focus said in its recently released 2018 Gold Focus report that gold could remain range-bound – in the first-quarter range of from $1,310 to $1,360 – in the second quarter, but it is likely to reach $1,450 by the end of the year.  Metals Focus cited some factors that might propel gold higher – slower-than-expected U.S. economic growth, renewed U.S. dollar weakness, real short-term interest rates remaining negative, and a lack of material upside in the stock market.

Nikos Kavalis, director of Metals Focus, commented, “when, rather than if, equities correct… investor rotation back into gold, even on a modest scale, should help take it to around $1,450 by year-end.”

In addition, several other gold miners and metals analysts are becoming more bullish on the gold price:

Iamgold CEO Stephen Letwin says that the global gold mining industry isn’t replacing the reserves it’s mining and there’s a lack of new explorationThat points to higher gold prices over time. “Gold has a much higher probability of moving north as opposed to south,” Letwin said in an interview at a mining conference in Hong Kong last week. “I’ve been around a long time,” he said. “When you’re in an industry that’s not replacing what it produces, eventually, the price has to move up.” 

Vivek Dhar, Mining and Energy Commodities Analyst at Australia’s Commonwealth Bank, said, “We upgrade our gold price forecast to reflect our weaker U.S. dollar outlook.” since the U.S. dollar is “negatively correlated to gold prices.” Dhar added: “The initial impact on gold prices from the U.S.-China trade war has been positive, which we expect will continue.”

Frank Holmes, chief executive officer of U.S. Global Investors, wrote last week that mine supply topped out in 2017 or is set to do so this year. Holmes said that the combination of understated inflation along with strong demand from China and India could move gold up to $1,500 by the end of this year.

 

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