Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Stock Index Trend Trade Setups for the SP500 & NASDAQ - 22nd Jan 18
Stock Market Deceleration / Distribution - 22nd Jan 18
US Markets vs Govt Shutdown: Stock Markets at all time highs - 22nd Jan 18
Land Rover Discovery Sport - 1 Month Driving Test Review - 22nd Jan 18
Why should you use high-quality YouTube to mp3 converter? - 22nd Jan 18
Silver As Strategic Metal: Why Its Price Will Soar - 21st Jan 18
Stocks, Gold and Interest Rates Three Amigos Ride On - 21st Jan 18
Why Sometimes, "Beating the S&P 500" Isn't Good Enough - 21st Jan 18
Bunnies and Geckos of Sheffield Street Tree Fellings Protests Explained - 21st Jan 18
Jim Rickards: Next Financial Panic Will Be the Biggest of All, with Only One Place to Turn… - 20th Jan 18
Macro Trend Changes for Gold in 2018 and Beyond - Empire Club of Canada - 20th Jan 18
Top 5 Trader Information Sources for Timely, Successful Investing - 20th Jan 18
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18
How to Know If This Stock Market Rally Will Continue for Two More Months? - 14th Jan 18
Everything SMIGGLE from Pencil Cases to Water Bottles, Pens and Springs! - 14th Jan 18
Land Rover Discovery Sport Very Bad MPG Fuel Economy! Real Owner's Review - 14th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

Why Gold is Still a Great Long-term Investment

Commodities / Gold and Silver 2013 Feb 21, 2013 - 03:40 PM GMT

By: Money_Morning

Commodities

Jeff Uscher writes: There are a lot of moving parts to the gold story so let's start with the biggest takeaway: Gold prices are facing only a temporary setback.

Longer-term, as the U.S. Federal Reserve and other central banks begin to wind down quantitative easing and, more importantly, begin to ease interest rates back up to more "normal" levels, inflation should begin to kick in and drive gold up to new highs, making the yellow metal a great long-term investment.


First, though, let's tease apart the various factors that currently are driving the price of gold lower.

QE and Gold Prices
The Federal Open Market Committee is beginning to consider the timing of the end of quantitative easing.

The most recent FOMC meeting explored the idea of ending quantitative easing but keeping the Fed funds rate between zero and 0.25% until unemployment falls below 6.5% and as long as inflation remains below 2.5%.

But the markets are expecting long-term rates to rise when the Fed stops buying Treasury bonds through its asset-purchasing (quantitative easing) program.

The market is assuming that the Fed's purchases are keeping long-term interest rates artificially low.

Once those purchases stop, it is reasoned that long-term rates will rise to where they would be if the Fed had done nothing. As a result, the yield curve has steepened with 10-year rates now over 2.0% and 30-year bonds yielding 3.19%.

Although the yield curve has steepened, it is not really discounting any inflationary expectations. That is especially true, given the looming budget sequester next week.

Yields on 10-year Treasury Inflation-Protected Securities (TIPS) are still negative while 30-year TIPS offer a whopping 0.6% annual, inflation-adjusted yield.

Perhaps gold prices are telling us that since the market is not anticipating inflation for the next 30 years, there is no real point in owning gold as an inflation hedge.

Check Out this Ugly Gold Prices Chart
Although the gold chart is more of a symptom than a cause, gold has broken below just about all of its major supports on the daily chart.

You can also look at the SPDR Gold Trust (NYSE: GLD). GLD's price has fallen below its 500-day simple moving average for the first time since Oct. 22, 2008, at the height of the financial crisis. GLD traded below the 500-day simple moving average until Dec. 9, 2008, and never touched that moving average again until Feb. 11, 2013.

Much has been made of the fact that, in the next day or two, GLD's 50-day simple moving average and the 200-day simple moving average will form a death cross (when the 50-day moving average crosses below the 200-day moving average and both are moving lower) but this is simply a confirmation that GLD is in a down trend. That has been evident since the 50-day simple moving average peaked back on Nov. 23, 2012.

What's more important is that there's support for GLD around the 150 level, which held twice during 2012. If that fails, then the next support level would be at the 200-week simple moving average, currently 137.46 and rising.

The chart is ugly to be sure, but it isn't game-over for GLD.

Unusual Moves in the Gold Futures Market
Perhaps the most likely cause of the recent weakness in gold prices comes from the unusual relationship between the spot gold price and gold futures.

When traders buy gold futures, unless they want to take delivery of physical gold, they must sell expiring futures contracts and roll their positions out to a later month.

Typically, as a near contract approaches expiry, it will trade at a discount to the spot price as selling reaches a climax. This is happening right now to the February contract and there is nothing unusual about that.

What is unusual is that the April contract, where there is no pressure from expiration, went into backwardation Friday. This means that you can make a profit by selling spot gold today and buying a contract to receive delivery of gold in April.

But, according to Keith Weiner, writing for Monetary Metals LLC, what is really strange about this is that the open interest in the April gold contract is rising, which should be pushing the price of the April contract higher.

Weiner suggests that there is a large long silver/short gold arbitrage position out there. If that is true, the arb is getting killed as the gold/silver ratio has risen by 4.3% since the end of January.

In other words, as fast as the gold price has fallen, silver has fallen even faster.

When to Buy Gold
We remain positive on the long-term outlook for gold prices.

As mentioned above, higher long-term bond yields and the end of QE will not necessarily result in inflation.

Even though it sounds counterintuitive, inflation is being held in check by zero interest rates. Once the Fed starts to raise interest rates back toward "normal" levels, that's when we will begin to see the inflationary impact of all the QE that has been dumped into the market.

In the absence of inflation, we turn to the chart. There is strong support for GLD around $150. That seems to be a good entry point for a long-term rally in gold prices.

Gold prices were trading at $1,567.50 an ounce in New York Wednesday afternoon.

Check out our 2013 Guide to Investing in Gold.

Want to know more about gold prices and how to profit from them in 2013? Bill Patalon frequently updates his readers on how to play to gold in his Private Briefing investment service. Find out how to get in the loop here.

Source :http://moneymorning.com/2013/02/20/gold-prices-the-yellow-metals-still-a-great-long-term-investment/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules