Best of the Week
Most Popular
1.Trump Delirium Triggers Stock Market Brexit Upwards Crash Towards Dow 20,000! - Nadeem_Walayat
2.The Future Price Of Gold Will Drop Below $1000 In 2017 -InvestingHaven
3.May Never Get Another Opportunity to Buy Gold at this Level Again - Chris_Vermeulen
4.Delirium - The Real Reason Why Donald Trump Won the US Presidential Election - Nadeem_Walayat
5.Why Nate Silver / Fivethirtyeight is one of the Most Reliable Election Forecasting Indicator? - Nadeem_Walayat
6.Gold Price Forecast: Nasty Naughty November Gold Price Trend - I_M_Vronsky
7.Gold Mining Stocks Screaming Buy! Q3’16 Fundamentals - Zeal_LLC
8.Delirium of Trump Mania Win's Mr BrExit US Presidential Election 2016 - Nadeem_Walayat
9.The War On Cash Goes Nuclear In India, Australia and Across The World - Jeff_Berwick
10.Hidden Signs for Gold and Silver - P_Radomski_CFA
Last 7 days
Trump Stocks Bull Market Furious Rally Towards Dow 20k as Bear Mantra Persists - 8th Dec 16
More Talk About More Economic Growth and More Globalization - 7th Dec 16
Cracks In US Treasury Bond Market, The Japanese Factor - 7th Dec 16
The Rise of Anti-Establishment Italy - 7th Dec 16
Trump Likely to Drive Another Bump in Stock Market Buybacks — Here’s How to Hedge - 7th Dec 16
World War II and the Origins of American Unease - 7th Dec 16
Online CFD Trading for Traders on a Budget - 7th Dec 16
Silver Bullion Price Buying Opportunity for 2017? - 7th Dec 16
The Imminent Multi-Trillion Dollar Surge In Social Security & Medicare Costs - 7th Dec 16
Gold Bullion Price Buying Opportunity for 2017? - 6th Dec 16
Shariah Gold Standard Approved for $2 Trillion Islamic Finance Market - 6th Dec 16
THE Gold Play for 2017 - 6th Dec 16
Trump Sets The Stage For A Huge Gold Rally In 2017 - 6th Dec 16
BrExit Tsunami Claims Emperor Renzi's Scalp, Counting Down to End of the EU, Next? - 6th Dec 16
Failed EU - Means an Expanded Dictatorship - 6th Dec 16
Crude Oil Prices: "Random"? Hardly - 5th Dec 16
The Coming Stock Market Crash and WWIII - 5th Dec 16
This Past Week in Gold Market - 5th Dec 16
Stock Market Short-Term Correction Underway - 5th Dec 16
If Trump Doesn’t Do This, We Will Have the Great Depression 2.0 - 5th Dec 16
India’s Demonetization Could Be the First Cash Domino to Fall - 5th Dec 16
Our Future Economy, Jobs, Banking, And Governance - 5th Dec 16
Gold and Silver Bullion Buying Opportunity for 2017? - 4th Dec 16
First UK BrExit then Trump, Next BrExit Tsunami Wave to Hit Italy HARD Sunday! - 3rd Dec 16
The 10YR Yield and SPX Stocks Bull Markets - 3rd Dec 16
Gold And Silver – Do Not Expect Much Difference With Trump Compared To Obama - 3rd Dec 16
Gold, Currencies and Markets Critical 61.8% Retracements - 2nd Dec 16
Gold Junior Stocks Q3’16 Fundamentals - 2nd Dec 16
Adventures in Castro’s Cuba - 2nd Dec 16
We Are Putting Off the Inevitable - 2nd Dec 16
Macroeconomic Cycles & Demographics - A Fuse, An Explosive and The Igniting Catalyst - 2nd Dec 16
How Moving Averages Can Identify a Trade - 1st Dec 16
Silver Prices and Interest Rates - 1st Dec 16
America, is it Finally time for us to say Goodbye? - 1st Dec 16
Blockchain Technology – What Is It and How Will It Change Your Life? - 1st Dec 16
Burn the Flags, Can Trump Salvage The Sinking US Economic Ship? - 1st Dec 16
Will US Housing Real Estate Market Tank in 2017? - 1st Dec 16
Referendum Puts Italy's Government to the Test - 30th Nov 16
Why We Haven’t Seen Gold Price Rally after Trump Victory - 30th Nov 16
Breakdown and Slide in Crude Oil Price - 30th Nov 16
A 'Wicked Rally' in Gold Price Predicted - 30th Nov 16
Silver Market Sentiment Looks Golden - 30th Nov 16
Indian Demonetization Denotes Severe Stress in the Global Gold Market - 30th Nov 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

$10000 Gold

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

© 2005-2016 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

Catching a Falling Financial Knife