Understanding The Gold Trade: Why Gold Hates Inflation
- Inflation is moderately low, but with the Federal Funds rate near zero, real rates are negative.
- The Fed will not raise rates until inflation expectations increase.
- With inflation expectations well-grounded, consider both physically backed gold plays, such as the GLD, and also a basket of miners, such as the GDX, with their leverage to gold prices.
Newmont Breaks Ground At $1 Billion Merian Mine In Suriname
- Merian is key to Newmont stabilizing gold production above 5 million ounces per year.
- Merian contains 4.2 million ounces of probable reserves.
- All-in sustain costs are estimated between $750 and $850 with initial production between 400,000 and 500,000 ounces per year.
- Suriname agreed to became a fully-funded, 25% limited partner.
Why Greenspan Is Long Gold And Dissing Fiat Currencies
- Greenspan says unwinding the Federal Reserve and ECB balance sheets will cause turmoil.
- Greenspan believes turmoil moves positively into the gold price because gold is the premiere currency.
- History points towards gold’s intrinsic monetary characteristics. Today’s central bankers share the belief that gold is money.
New Gold Discoveries Plunge, Peak Gold In 2015 Predicted
- The market’s focus on impending interest rate increases misses the longer-term trend of diminishing gold supply.
- New gold discoveries are at the lowest levels in decades.
- Global exploration budgets, while still elevated historically, are falling significantly.
Gold Eyes ECB, Preps For Eurozone QE
- The ECB is preparing measures to buy Eurozone sovereign bonds.
- Draghi does not believe unsterilized sovereign bond purchases violate its mandate against monetary financing.
- If forced to sterilize sovereign bond purchases, Draghi will implement a weak sterilization regime.
- Expectations of lower bond yields and an increase in uncertainty in the Eurozone are accretive to gold prices.
Despite Recent Blood, Gold Crushing S&P 500 Total Return
- Constituted ten years ago, the gold backed GLD outperformed the S&P 500 Total Return by 39% and kept pace with Berkshire Hathaway.
- Recent blood in the precious metals markets and surge in equities presents a classic sell high, buy low opportunity.
- Near-term catalyst, such as delay in Fed tightening, should halt the fall of gold prices.
Ebola Risk Threatens Randgold Resources In Mali
- The World Health Organization is treating the Ebola situation in Mali as an emergency.
- Mali’s initial Ebola case is centered in the Kayes region of Mali. Randgold Resources’ flagship gold mining complex is also located in the Kayes region.
- Consider reducing exposure to Randgold Resources while still maintaining leveraged exposure to potential gold price increases.
Markets Misreading Of Fed Statement Is Opportunity In Gold
- The markets misread changes to the FOMC’s October statement as hawkish, focusing only on changes to language concerning the labor market.
- The statement contained dovish additions regarding inflation expectations and shifts in votes toward a more dovish stance.
- The sell-off in gold following the statement release offers a buying opportunity before markets price-in a more dovish Fed.
Gold And Silver Shine When Data Dependent Fed Caves
- Impending increases to the federal funds rate, now called “liftoff” by the FOMC, begin in the second quarter of 2015 according to current projections.
- As incoming data continues to point toward increasing economic weakness, FOMC participant projections for the federal funds rate likely shift toward a later, weaker more dovish upward movement.
- Both the preceding market anticipation and eventual declaration of a more dovish FOMC stance would be positive for the monetary metals and is yet to be priced in.
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