Gold & Precious Metals
The Swiss banking giant is recommending that investors buy the yellow metal for insurance.
UBS Group’s (NYSE:UBS) wealth management unit says gold will probably trade between $1,200 and $1,300 an ounce in the short-term, and is recommending that investors buy the yellow metal for insurance.
“We’re not saying we have a bullish bias; we’re not saying we have a bearish bias,” Wayne Gordon, the firm’s executive director for commodities and foreign exchange, told Bloomberg.
“We’re saying that tactically, people should be buying it somewhere near $1,200 and selling it again somewhere near $1,300, and it’s because we have a view that real rates go sideways. So the pickup in nominal rates will be equally matched by the pickup in inflation,” Gordon added.
If US unemployment keeps falling, and the US Federal Reserve keeps raising interest rates no matter what inflation data shows, that will be negative for gold in the short term, he said.
Other analysts agree with this short-term forecast. In fact, after last week’s hawkish comments from the world’s biggest banks, it seems most central banks will follow the US and tighten policy measures, which could hurt gold.
“We still have two rate hikes factored in for the [US Federal Reserve] in the second half of the year, and we expect some reduction of the balance sheet,” Capital Economics analyst Simona Gambarini said.
“At the same time, in the UK and Europe, although policy will remain loose for some time, it will start to turn the other way,” she added. “So all in all, it doesn’t bode so well for gold prices.”
But according to UBS, if the US economic slowdown seen at the start of 2017 is not as temporary as the Fed believes, or if global growth slows, policymakers will have to review their tightening path. “We like the insurance qualities for gold just from an unknown perspective at these sorts of levels,” Gordon explained.
The gold price was trading at $1,223 on Tuesday (July 4), after rallying somewhat from an eight-week low reached on Monday (July 3). Geopolitical worries turned investors to safe-haven assets, as North Korea announced the successful launch of an intercontinental ballistic missile that could reach Alaska. The announcement was made on North Korean state television on Tuesday afternoon in the early hours of Independence Day in the US.
“Although the current market anxiety and flight to safety has the ability to support gold, the sharp $23 depreciation observed on Monday will be difficult for bulls to claw back. Short term bears remain in control with gold at risk of depreciating further if the Greenback continues to stabilise,” said Lukman Otunuga, a research analyst at FXTM.
Yesterday I talked about how to build the first part of your personal Plan B– an impenetrable defense.
Today I’m going to show you how to build a strong offense.
Once you have a strong defense that protects everything you have, a good offense positions you for gain.
It helps you move the ball down the field, grow your wealth and achieve exceptional investment returns… all while taking minimal risk.
Step #1: Invest outside of the mainstream
When I say outside the mainstream, I don’t mean weird or highly risky. I mean beyond conventional wisdom… in other words, beyond stocks and bonds.
In fact, I always look for smart investments that have high risk-adjusted returns.
In other words, I would prefer an investment with a 9% return and little risk of losing my capital over a super risky investment that could return 25%.
And the best way to ensure that is to buy:
(1) High-quality assets
(2) Managed by competent people of integrity
(3) At prices that are at/below intrinsic value
There are plenty of high-quality assets out there today. But finding anything at a decent price is next to impossible.
The stock market is at an all-time high. Companies are selling for huge multiples of their earnings – like Amazon, which trades at a price-to-earnings ratio of 180.
But if you look outside conventional investments, you discover a whole, new world of opportunities.
Things like… deeply undervalued international stocks, secured peer-to-peer lending, private businesses, agricultural real estate and even royalties of songs.
For example, our colleagues at Silver Bullion, the most advanced bullion depository in Singapore, have created a peer-to-peer lending platform where investors can loan funds against gold and silver, typically backed at a 2:1 margin, at deposit rates up to 6%.
In other words, you can lend $50,000, and earn a strong, 6% return while your money is backed by $100,000 worth of gold and silver.
If something goes wrong and the borrower doesn’t pay, the lender has substantial collateral to ensure his investment is made whole.
Again, 6% might not sound like a lot when you have stocks like Tesla returning around 80% this year along. But eventually Tesla’s valuation will come back down to earth.
And on a risk-adjusted basis, these types of investments are very strong performers and make sense for anyone to consider.
These are the types of safe, unconventional investments we look for at Sovereign Man. And we’ve found a handful of excellent opportunities for anyone looking to park some cash in a safe place and earn solid yields.
For example, our Sovereign Man: Confidential Members have access to a similar peer-to-peer opportunity that is paying 12% interest per year.
Step #2: Legally reduce your taxes
Remember this point…
Taking legal steps to reduce your taxes is the highest return on investment you’ll ever make.
Think about it– cutting your tax burden can “boost” your investment return by 10%, 20%, or more, without taking on any risk.
I know this is a bold proclamation, and maybe you think lowering your tax burden is immoral and unpatriotic.
If that’s the case, I’d encourage you to stay open-minded about this topic. I wont’ get into the details here, but I actually believe I have a moral obligation to reduce my taxes by as much as possible.
The truth is, governments all around the world have demonstrated over and over again that they are terrible custodians of money. They’re unable to manage it effectively and are squandering most of it.
You are much more capable at deciding how your money should be used – and where it will do the most good for yourself and the world.
It’s not immoral or unpatriotic. It is sensible and smart.
And I’m not talking about anything illegal here. Committing tax evasion or fraud is one of the worst decisions you could ever make, considering the harsh penalties and the abundance of legal, no-brainer strategies to reduce your taxes.
There are simple steps available to everyone, such as restructuring your retirement accounts (more on that below), but also more advanced strategies if you have your own business or are willing to move abroad (even if just temporarily).
Step #3: Liberate your retirement savings
Most retirement plans are confined to your backyard. If you have a US retirement plan, you’re allowed to invest in government bonds and the US stock market.
But what if US stocks are overvalued? What if you don’t want to loan money to the government?
With a more robust structure like a self-directed IRA or solo 401(k), you’ll be able to open up an entire universe of new investment opportunities…
Private investments. Cashflowing royalties. Cryptocurrencies. High-interest foreign bank accounts. Safe, secured lending opportunities.
All of these options are available with a more robust retirement plan, allowing you the chance to generate higher returns without the cost of paying some Wall Street firm to manage your account.
And at the same time you can significantly reduce your tax obligation– beating two birds with one stone.
The bottom line…
Investing outside the mainstream and reducing your taxes are no-brainer strategies to grow your wealth and take advantage of the opportunities the world has to offer.
To your freedom and investment success,
Simon Black
PS:
If you’re interested in building a strong defense, I’d encourage you to learn more about Sovereign Man:Confidential. We cover, in detail, all of the strategies we discussed in today’s essay.
Jul 4, 2017
The latest gold price action is a near-perfect reflection of the current market fundamentals.- Please click chart now. Double-click to enlarge.
- Gold has arrived at my $1220 – $1200 conservative investor buy zone.
- The market is seasonally soft in the summer months, but two key price drivers are poised to create the next rally.
- The first is the US jobs report. It’s scheduled for release on Friday at 8:30AM. Market participants are going to be looking at wage price inflation as much as they are looking at the total number of jobs created.
- Gold has a rough general tendency to soften ahead of this report, and then rally strongly following its release.
- The $1220 – $1200 support zone is an ideal price area for gold bugs to buy in anticipation of a post jobs report rally!
- Please click here now. Double-click to enlarge this seasonal spot gold chart, courtesy of Dimitri Speck.
- This chart should be used by all gold bugs as a key reference chart to understand gold’s seasonality.
- In a nutshell, the summer is the best time to accumulate gold, and February is a great time to book some profits.
- The current price softness is seasonally normal, and it’s exacerbated by the decision of bullion banks to halt imports into India.
- They decided to halt imports until they got clarification about applying the new GST regime to the gold market. It appears that June imports were only about five tons.
- It’s almost impossible for gold to rally with Indian bullion banks importing no gold, but there is some great news.
- To view that news, please click here now. Imports are set to resume next week, and that resumption will coincide with upside pressure on the gold price that typically follows the US jobs report release.
- “I personally feel India is poised for double-digit growth, GST is an aid to it, even without GST we would have reached there. If you ask my personal judgment, post 2019-2020 we are poised for double digit growth.” – Rakesh Jhunjhunwala, one of India’s top investors, July 4, 2017.
- Gold demand in India is in a basing zone, and I expect the country’s gold market infrastructure to become as good as China’s in just the next three years.
- A floor of double digit GDP growth in India is going to create a “bull era” in gold demand growth. Simply put, it’s the greatest time in history to be an investor in the precious metals asset class.
- Please click here now. In any business cycle, growth generally peaks as the cycle peaks.
- The current US business cycle is about eight years old, and growth is quite strong, relatively speaking. This strength should now begin to create wage inflation, which is good news for gold stock enthusiasts.
- To understand why I use the phrase “relatively speaking”, please click here now. Germany and China have the biggest current account surpluses in the world. The US has the biggest deficit.
- It’s a “no brainer” to see why Europe’s most powerful nation (Germany) is joining forces with China. A current account surplus “cartel” is essentially being created. This is going to put enormous pressure on the Trump administration to devalue the dollar against other fiat currencies, and perhaps directly against gold.
- While gold is seasonally weak, investors should not let this distract them from the fact that gold is fundamentally and technically in a key buying area now. It’s poised to see very solid appreciation in the years ahead.
- Please click here now. Double-click to enlarge this GDX chart. In a deflationary crisis, gold and silver bullion are the best performers. Gold stocks tend to look like wet noodles, and silver stocks can look even worse. As the winds of inflation begin to pick up against a background of possible dollar devaluation, the mining stocks will be the leaders.
- I view the $23 – $18 area for GDX as one of the most important accumulation price zones in the history of markets. Investors who take action here are poised to be rewarded with gains that are not just big, but here to stay!
Thanks!
Cheers
st
Jul 4, 2017
Stewart Thomson
Graceland Updates
website: www.gracelandupdates.com
Strengths
- The best performing precious metal for the week was silver, with a fall of just 0.51 percent with platinum just behind that. Following wild price swings on heavy volume Monday and Tuesday in a suspected erroneous trade, gold traders and analysts remained bullish for a second week, reports Bloomberg. On Monday, 1.8 million ounces of the yellow metal were sold in a single minute and on Tuesday prices spiked in early European trading with about 815,000 ounces of gold bought in five minutes – a suspected reverse on the Monday fat finger trade.
- The euro has climbed to a 13-month high on speculation that Mario Draghi’s ECB is poised to reduce unprecedented monetary stimulus, writes Bloomberg News. This has allowed Europeans to pay the least this year to buy gold, the article continues, while comments from Fed Chair Janet Yellen this week did little to support the U.S. currency.
- HKEK and the Chinese Gold & Silver Exchange Society signed MoU on Thursday to consider cooperation on matters such as product promotion and storage vaults, according to a statement on the Hong Kong Exchanges & Clearing website. MoU signifies strategic partnership that aims to build a major gold and commodities trading center in Asia Pacific, said CGSE President Haywood Cheung in a statement, reports Bloomberg.
Weaknesses
- The worst performing precious metal for the week was palladium, down 2.13 percent on money managers cutting their bullish bets on palladium futures to the least bullish level in three weeks. Bullion for immediate delivery is down around 2 percent in June, reports Bloomberg, and on course to end the longest run of monthly gains since 2010. Central banks around the world have taken a more hawkish stance on monetary policy, curbing the appeal of assets that don’t pay interest.
- On Monday, gold fell around $20 in a matter of seconds around 4am ET. While the yellow metal recovered a portion of those losses, it still traded down 1 percent. “No-one has a clue, apart from the unfortunate individual that pressed the wrong button,” David Govett, head of precious metals trading at Marex Spectron Group, said about the unusual plunge. Gold has gained 7.36 percent year-to-date, writes Bloomberg, but has struggled to break through its pre-election level of about $1,300.
- China’s gold imports from Hong Kong fell for a second month in May, reports Bloomberg, as world prices wavered. Data from the Hong Kong Census and Statistics Department show that the country purchased a net 44.8 metric tons, down from 74.9 tons in April.
Opportunities
- According to Bloomberg, global central bankers are all hinting that the cost of money is heading higher. Euro-area economic confidence jumped to its highest level since August 2007 and German inflation unexpectedly rose in June. In a note from BCA this week, the group writes: “If the U.S. dollar turns and the downside pressure on their currencies abate, emerging market central banks will no longer have to sell their FX reserves. If the banks take advantage of currency stability/strength to ease policy, it would underpin a cyclical improvement in their economies. EM assets and commodity prices, along with commodity currencies, would benefit if this would transpire.”
- There are two major developments that have emerged in the capital markets, writes Drew Mason of St. Joseph Partners. First, the dollar has broken its long-term major uptrend of more than a decade. Second, we’re seeing pressure on bonds, and long-term rates in particular are rising. And, despite these trends capping gold’s performance, gold (despite having no income stream attached to it as all the market pundits point out) has still outperformed the stock market since 2000 at a ratio of almost 2:1.
- Despite opposition from nearly the entire Trump Cabinet, the President and a few top advisers are “hell bent” on imposing tariffs on steel imports of 20 percent, reports Seeking Alpha. Penalties could eventually be extended to other imports too. In related sector news, Societe Generale raised its 2017 aluminum and gold price outlook, while cutting copper. Morgan Stanley listed palladium, gold and silver as its top picks, while cutting nickel.
Threats
- Tanzania’s parliament introduced three draft laws on Thursday, that would allow it to force mining and energy companies to renegotiate their contracts, reports CNBC. “They follow 18 months of wrangling between mining companies and President John Magufuli that have delighted Tanzanian voters but alarmed foreign investors,” the article continues. In a note from Luke Nelson at JP Morgan, the draft regulations contain a number of concerning provisions. For example, they suggest existing stability agreements could be renegotiated should the National Assembly find their terms to be “unconscionable.” Similarly, the drafts suggest future stabilization agreements shall be time bound and make provision for periodic renegotiation.
- Gabriel Resources is seeking $4.4 billion from Romania for destroying the value of the long-stalled gold mine project, reports Bloomberg. Gabriel says the government has unlawfully blocked permits, disregarded existing license rights and ignored all requests for conciliation and negotiation. The company was once worth more than C$2.7 billion, but its value has collapsed to a fraction of that, the article continues.
- Although historical patterns are all pointing to the fact that inflation should surge, these patterns may be in the process of breaking with history, reports Bloomberg. “Global labor markets have seen profound changes over the past decades, with significant implications for wage and price information,” the Bank for International Settlements said. “The question for many central banks is whether these developments have so weakened the relationship between inflation and labor-market slack that the recent tightening of labor markets poses little threat of an inflation overshoot.” Famous last words, perhaps.
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