The Wall Street Examiner » Gold Stocks

Gold Prices and the "Grexit" Effect

Guest Editorial — Thu, 24 May 2012 14:17:41 +0000

Lately gold priceshave been affected by a strengthening dollar resulting from troubles overseas.On Tuesday, Greek Prime Minister Lucas Papademos told Dow Jones Newswiresthat considerations were being made for a potential exit by Greece from the euro. He also warned that such an exit would be “catastrophic” for the country and that fallout across the entire Eurozone would be severe.Concerns over what will happen to Greece and the Eurozone if Greece leaves have caused the euro to drop to $1.255, its lowest level against the dollar since July 2010.

These issues have led to a rising dollar as investors continue to move out of gold and into the dollar.

“Not surprisingly, Greece is the biggest single factor behind the move [out of gold and into dollars],” said Money Morning Chief Investment Strategist Keith Fitz-Gerald on May 11. “Traders are concerned that the nation will summarily go its own way, shatter the EU’s bailout and potentially sink the euro itself.”

Constant worries loom of a “Grexit” as European leaders met in an informal summit in Brussels today (Wednesday) to talk about the debt crisis and how best to spur growth in the struggling Eurozone.

The meeting comes a day after the Organization for Economic Cooperation and Development (OECD) issued a warning that the 17 countries that use the euro risk falling into a “severe recession.”

“The crisis in the Eurozone remains the single biggest downside risk facing the global outlook,” said Pier Carlo Padoan, chief economist for the OECD.

So just how low can gold prices go?

The Gold Prices Pullback

After peaking at an intraday high of $1,920/oz. last September, gold is down almost 20% from that level. Gold has been down more than 2.5% Wednesday, crossing the $1,540 line.

The yellow metal has fallen during the past three months and can’t seem to get up – a very rare sight.

Since 1957, gold prices have fallen three months in a row 65 times out of a total of 661 three-month periods, according to data compiled by Bloomberg and Standard and Poor’s.

But as Fitz-Gerald explained, this is not really a bad thing in the bigger scheme of the gold market.

“People forget that gold prices fell by more than half from 1975 to 1976, and were down 17 out of 24 months,” Fitz-Gerald wrote earlier this month. “At the same time, gold prices also recorded 10 three-month declines during the period. That was, incidentally, right before gold rose 721.25% to $850.00/oz.– a peak gold hit on January 21, 1980.”

What does this tell us?

“The point is, bear tracks always precede bull market runs,” said Fitz-Gerald. “So I am not especially concerned by this pullback in gold.”

Time to Buy Gold?

So when will the gold price slide stop, and when should you buy?

As I write this article, gold has been trading between $1,530 and $1,540, and could be on its way to $1,500.

Fitz-Gerald thinks that’s a good entry point if you’re a short-term trader.

On May 11 he wrote, “… gold has broken under $1,600 for the first time since December 30 and we’ve seen the first close under $1,600 this year. If it busts $1,500/oz., backing up the truck for gold is probably a pretty good idea. At $1,300 it’s time to load up.”

For long-term investors, Fitz-Gerald recommended making measured investments. These could include, for instance, increasing allocations to bullion, gold certificates, coins or ETFs as the price drops.

Whether you buy gold at $1,500, $1,300, or $1,600 you will make a decent profit when gold reaches $2,000.

As Fitz-Gerald points out, it is only a matter of time before people come back to gold.

Related Articles and News:

Money Morning:
Everything You Need to Know About Gold Prices

Money Morning:
Gold Prices to Break $2,000: Here’s How You Can Profit

Money Morning:
The Case for Higher Gold Prices

Money Morning:
QE3, $2,200 Gold, and the Trillion Dollar Bazooka

Everything You Need to Know About Gold Prices

Keith Fitz-Gerald — Fri, 11 May 2012 10:00:22 +0000

Gold's hot. Then it's not. Now what?

Where did the love for the shiny metal go?

Now the gold bugs are crying, and the "I told you so crowd" is warming up in the wings.

After a stunning rally to $1,895/oz., gold prices are down hard, falling below $1,600/oz. That's a 16.11% drop that has the gold bears drooling for more-but probably not for long.

Let's start with gold prices themselves. Right now they're down three months in a row and many gold investors fear there's no bottom in sight.

What they don't realize is that the fall in gold prices is as rare as proverbial hen's teeth. This is the first time we've seen gold prices tumble three months in a row since March of 2001.

In fact, since 1957 we've only seen gold prices fall three months in a row 65 times out of a total of 661 three-month periods, according to data compiled by Bloomberg and Standard and Poor's.

But here's the thing about gold prices...

Gold could fall all the way through May, turning what it already a rare occurrence into an ultra-rare occurrence.

Would that be a bad thing? In the bigger scheme of things, not really.

People forget that gold prices fell by more than half from 1975 to 1976, and were down 17 out of 24 months. At the same time, gold prices also recorded 10 three-month declines during the period.

That was, incidentally, right before gold rose 721.25% to $850.00/oz.-- a peak gold hit on January 21, 1980.

The point is, bear tracks always precede bull market runs. So I am not especially concerned by this pullback in gold.

In fact, as you can see from an earlier forecast, we're right on target with my expectations for gold this year.

Take a look at what I shared with my readers on January 2, 2012:

The drop in prices we're seeing is simply a matter of traders adjusting their risk tolerance by taking money off the table. They are moving out of gold and into dollars.

Gold Prices Are Driven by the "Smart Money"

Not surprisingly, Greece is the biggest single factor behind the move. Traders are concerned that the nation will summarily go its own way, shatter the EU's bailout and potentially sink the euro itself.

Next week the worries may be something entirely different. You just never know how these events are going to unfold in the short term. I sure don't.

I believe gold prices will fall further. Traders still haven't totally priced in the costs of an EU flameout, nor have they begun to liquidate positions to raise the necessary capital to meet redemption requests you just know are waiting in the wings.

Don't forget that gold is now a marginable asset. It is also one of the most liquid assets on the planet if you factor in derivatives like futures and options - many of which form the basis for sophisticated stock trading models because they indirectly dictate the amount of risk a trader can or cannot take.

In other words, gold is driven by "smart money" - meaning those with the scope and scale to move markets -- even if it's not all that smart.

As Western currencies decline and emerging economies continue to "buy" value outside the U.S. dollar, international demand for physical gold is more likely to increase than decrease.

China is the most aggressive of these foreign buyers, accumulating an average of 45 more tons per month over the last eight months than the prior eight, according to Eric Sprott, CEO of Sprott Asset Management.

You can guess what kind of effect this is going to have on gold prices as easily as I can.

Other nations have a more indirect impact. Iran, for example, is planning to sell oil to China for gold as U.S. sanctions take effect. Brazil and Russia are both hinting at a move towards some sort of physically-backed currency basket in lieu of the dollar as an international backbone. And India recently retracted a gold tax that paves the way for broader gold ownership.

Just as it is with other forms of investments, capital is shifting from the nanny states of the West to the growth-backed economies of the Far East.

The sovereign debt crisis still burning in Europe will only accelerate this process, especially as major financial hubs transition trading activity to emerging and newly regulated exchanges like Shanghai.

Then there's France and newly elected President Francois Hollande, whose tax-and-spend policies are perhaps the biggest single potential influence on gold prices on the planet at the moment.

Think about it.

The EU is going up in flames and Hollande wants absolutely nothing to do with austerity. In fact, he's likely to abandon it entirely. That speaks to more stimulus and more bailouts.

European central bankers suggest this is necessary to drive growth. But last time I looked this was political speak for "imprimer de l'argent," or printing money.

And printing money by its very definition is inflationary.

Don't Lose Your Love for Gold

That means institutions and individuals alike are going to be looking for hard assets as a means of preserving their wealth. Once the headlines die down they will again turn to gold.

"So do I buy in?"

I get that question all the time and my answer remains the same. It depends on your expectations and your time frame:

If you're a short-term trader prone to timing-based decisions, I advocate buying into weakness over a period of months, especially now that gold has broken under $1,600 for the first time since December 30th and we've seen the first close under $1,600 this year. If it busts $1,500/oz., backing up the truck for gold is probably a pretty good idea. At $1,300 it's time to load up.

If you believe, like I do, that global demand will ultimately override short-term gyrations, making measured investments is the way to go in the meantime. That could include, for instance, increasing allocations to bullion, gold certificates, coins or ETFs as the price drops. Just as you want to sell into strength, you want to buy into weakness, especially when so many people are looking the other way.

At the end of the day, there's no rocket science to this.

The gold industry produces just 2,500-2,800 tons a year, depending on various data sources. Eric Sprott notes that if you take China and Russia out of the picture by removing the 500 or so tons they produce, it leaves approximately 2,200 tons for the rest of the market.

And I agree.

Imagine what happens when somebody wants an extra 500 tons. It's highly unlikely they'll be able to buy it without moving prices...higher.

[Editor's Note: Keith's Geiger Index continues to deliver for his subscribers. The track record on this one is amazing. Since inception, 64 of his 67 recommendations have been winners.

And looking at the big picture here, things are just getting started...

Once you see Keith's "secret weapon," you'll understand why. To learn more about the Geiger Index click here.]

Related Articles and News:

Money Morning:
Stock Market Volatility: How to Beat the Market at its Own Game
Money Morning:
What Magazine Covers Really Say About the Stock Market
Money Morning:
Gold Prices: How to Climb the "Golden Staircase'
Money Morning:
Why Gold Prices Should Thrive

Tags: Gold Prices, gold stocks, investing in gold, price of gold

Gold

Guest Editorial — Fri, 11 May 2012 10:00:21 +0000

Gold prices are still far from last year's record $1,920.30 an ounce.

Given the economic volatility in 2011, last year was a banner year for gold prices. Fears of global market turmoil helped push the yellow metal to record highs.

While the long-term bullish outlook for gold remains, short-term pressures have halted its steady climb.

"Gold has found more support recently, but it doesn't have all of the catalysts in place to be driven substantially higher yet," Suki Cooper, an analyst at Barclays Capital, told Reuters.

Here's why this dip isn't the start of a bearish gold year. Instead, it's a chance to stock up before gold prices head to $2,000 an ounce. (Want to know the best way to profit from soaring gold prices this year? Take a look at our latest special report today. It shows you how to get daily market information and specific recommendations in gold... silver... penny stocks... Asia... and biotech, to name just a few. Find the report right here.)

The Fed, India, and Gold Prices

For the next three months, the U.S. Federal Reserve is focused on a stabilizing U.S. economy and low inflation. In fact, the Fed's most recent forecast cooled talk of more monetary stimulus (or "quantitative easing").

The Fed expects U.S. economic growth to progress at a steady pace throughout the quarter. With moderate expansion rather than rapid growth or deflation, there's no need to curb borrowing, and Federal Reserve Chairman Ben Bernanke plans to keep interest rates near zero.

This bodes well for the U.S. dollar, and what's good for the dollar is often bad for gold prices.

It's no secret that a weakened dollar sends investors running to the real value of hard commodities. A stronger dollar does the inverse: It causes the big investors to be less cautious with regard to investments in liquid capital, creating a dip in gold prices.

Lagging Indian imports have also contributed to lower gold prices at the beginning of this quarter.

India is the world's leading consumer of gold. Last year alone, according to the World Gold Council, gold imports rose in that nation to a record high of 969 tons. But this year imports were down 55% in the first quarter due to a proposed tax on gold.

Indian jewelers protested the tax, finally convincing the government to back down. Gold sales are already picking back up in the world's largest gold market.

And the important Indian wedding season, which single-handedly pushes gold prices higher each year, is still to come.

Gold Prices Nearing Bottom

With India's market disruptions and the Fed's economic outlook, gold prices will remain flat - or even slip a bit more - before regaining momentum.

Thomson Reuters GFMS agrees with this assessment. The group released its annual gold market survey recently and predicted gold would touch its yearly low in the next few months. But after the current dip, gold will climb even higher, hitting a record $2,000 an ounce.

"Investors are somewhat disinterested in gold, but not disillusioned," said Philip Klapwijk, head of metals analytics at GFMS.

Klapwijk cited Eurozone debt concerns (especially about Spain), future Federal Reserve stimulus measures, and high oil prices as triggers for a renewed interest in yellow-metal purchases this year.

This means gold's current dip is a buying opportunity before the precious metal rebounds.

Action to Take

Today's discounted gold prices won't last much longer. But investors who want to buy into gold for the first time, or want to increase their gold holdings while prices are low, have a lot of options to choose from.

Money Morning Global Resources Specialist Peter Krauth recommends several ways to buy into gold for investors of different risk tolerances:

First, if you're a newcomer to the gold market - or you are somewhat risk-averse - Peter suggests the physically backed Sprott Physical Gold Trust ETV (NYSE: PHYS).

Run by legendary gold and silver trader Eric Sprott, PHYS is one of the safest and easiest ways to buy into the gold market.

Unlike an ETF that tries to mimic the performance of its underlying asset, Sprott's trust holds approximately 1.4 million ounces of physical gold bullion. Investors who buy into PHYS are buying real gold, not just shares.

In fact, if you own enough shares to equal at least one full bullion bar, you can take delivery of your gold (your gold - doesn't that sound great?) almost anywhere in the world.

If you're game for somewhat more leverage, Peter likes Newmont Mining Corp. (NYSE: NEM). This 91-year-old company is one of the world's largest gold companies. It's currently yielding a healthy 3%. It runs a stable business with well-diversified operations in seven different countries - the U.S., Australia, Peru, Indonesia, Ghana, New Zealand and Mexico.

And best of all, the company's dividend is linked to the price of gold, Peter said. That means, as gold moves higher, so will your dividends.

If maximum profits are your goal, Peter has one more play. And this one is his favorite. It's a gold streaming company that's risky, but worth it. The stock price is already moving up fast. It has gained 63% in the last four months, alone.

This company is a penny stock, with a market cap of less than $650 million. That means bigger potential profits for those who get in early. And Peter gives all the details on this new gold play in the latest Money Morning Private Briefing report: The Five Stocks You Have to Own This Year. To get this report and learn more about Private Briefing, go here.

Tags: Gold Prices, gold stocks, investing in gold, price of gold

Gold and Gold Stocks Bump Crucial Trendlines

Lee Adler — Fri, 20 Apr 2012 12:30:12 +0000

Here are today’s gold stock screens and data, along with cycle conditions and projections for gold and HUI index, and Chart of the Day picks for swing trades. Indispensable daily information for gold and precious metals stocks traders.Click here to download complete report in pdf format (Professional Edition Subscribers).

See the current full sized chart with a complete explanation and analysis and get daily updates on the 4 week, 6-7 week, 13 week, 6 month, 9-12 month and long term cycle projections in the Wall Street Examiner Professional Edition Daily Market Update.Try the Professional Edition, including this Precious Metals update risk free for thirty days. If, within that time you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.