Best of the Week
Most Popular
1.Crude Oil Price Trend Forecast 2016 Implications for Stock Market - Nadeem_Walayat
2.Odds of Winning Walkers Crisps Spell & Go olidays K, C and D Letters - Sami_Walayat
3.Massive Silver Price Rally During The Coming US Dollar Collapse - Hubert_Moolman
4.Pope Francis Calls For Worldwide Communist Government - Jeff_Berwick
5.EU Referendum Opinion Polls Neck and Neck Despite Operation Fear, Support BrExit Campaign - Nadeem_Walayat
6.David Morgan: There Will Soon Be a Run to Gold Like You've Never Seen Before - Mike Gleason
7.British Pound Soars on BrExit Hopes Despite Remain Establishment Fear Mongering - Nadeem_Walayat
8.Gold Price Possible $200 Rally - Bob_Loukas
9.The Federal Reserve is Not Going To Raise Interest Rates and Destroy Gold - Michael_Swanson
10.Silver Miners’ Q1’ 2016 Fundamentals - Zeal_LLC
Free Silver
Last 7 days
“Debt, Not The Economy, Reaches Escape Velocity” With Graham Mehl - 29th May 16
EU Referendum, Black Vote LEAVE or REMAIN? Which is Worse for Racism for Britain's Ethnic Minorities? - 29th May 16
Billionaire Gross: Jubilee Debt Relief as Prelude to New Global Economic Order - 29th May 16
Wargaming North Korea - Assessing the Threat - 29th May 16
EU REMAIN Population Forecasts - England 4.1 million Explosion, London Migration Crisis - 28th May 16
A Guide to the Trump-Sanders Debate - 28th May 16
Gold And Silver – At Significant Support. New “Story” Developing - 28th May 16
The Next Systemic Lehman Event - New Scheiss Dollar & Gold Trade Standard - 27th May 16
Energy and Debt Crisis Point to Much Higher Silver, Metals Prices - 27th May 16
Gold Junior Stocks Q1 2016 Fundamentals - 27th May 16
These Crisis Markets Are Primed to Deliver Big Gains, Platinum Never Cheaper! - 27th May 16
Operation Black Vote BrExit Warning for the Wrong EU Referendum - 27th May 16
UK Immigration Crisis Hits New Extreme, Catastrophic ONS Migration Stats Ahead of EU Referendum - 27th May 16
Many of the World’s Best Investors Made Their Fortunes This Way…And You Can Too - 27th May 16
The Ugly Truth About Stock Market Manipulation and Gold Prices - 27th May 16
Gold Price Looking Vulnerable While Gold Stocks Correct - 27th May 16
The 5 Fatal Flaws of Trading - 27th May 16
The Next Big Crash Of The U.S. Economy Is Coming, Here’s Why - 27th May 16
A New Golden Bull or Has the Market Gone Too Far Too Fast? - 27th May 16
It Feels Like Inflation - 26th May 16
Negative Interest Rates Set to Propel the Dow Jones to the Stratosphere? - 26th May 16
S&P Significant Low has Occurred – Not Likely! - 26th May 16
Statistics for Funeral Planning in UK Grave - 26th May 16
Think Beyond Oil And Gold: Interview With Mike 'Mish' Shedlock - 26th May 16
Hard Times and False Mainstream Media Narratives - 26th May 16
Will The Swiss Guarantee 75,000 CHF For Every Family? - 26th May 16
Is There A Stocks Bear Market in Progress? - 26th May 16
Billionaires Are Wrong on Gold - 26th May 16
How NOT to Invest in the Gold Market - 26th May 16
The Black Swan Spotter...Which Saw the Oil-Crash coming; now says the “Invisible Hand” will push Brent to $85 by Christmas - 26th May 16
U.S. Household Debt Still Below 2008 Peak - 25th May 16
Brexit: Wrong Discussion, Wrong People, Wrong Arguments - 25th May 16
SPX is at Strong Resistance - 25th May 16
US Dollar, Back From the Grave? - 25th May 16
Gold : Just the Facts Ma’am - 25th May 16
The Worst Urban Crisis in History Could be Upon Us - 24th May 16
Death Crosses Across The Board Are IRREFUTABLE Stock Market Sell Signals - 24th May 16
Bitcoin Trading Alert: Bitcoin Price Stays below $450 - 24th May 16
Stock Market Crash Death Cross Doom Prevails - 23rd May 16
Did AMAT Chirp? Implications for the Economy and Gold - 23rd May 16
Stocks Extended Their Rebound On Friday - Will They Continue Higher? - 23rd May 16
UK Treasury Propaganda Warns of 3.6% Brexit Recession, the £64 Billion Question? - 23rd May 16
Stock Market Support Breached, But Not Broken! - 23rd May 16
George Osborne Warns of 18% Cheaper House Prices - BrExit for First Time Buyers - 22nd May 16
Gold Bull-Phase I Continues to Confound (The Trek to “Known Values”) - 22nd May 16 r
Avoiding a War in Space - 22nd May 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Why 95% of Traders Fail

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