This morning gold and silver in NZ dollars are down around their lows for the year again. Gold is right on the long term support it has bounced off in the past few weeks around $1975 as you can see in the chart below. This level of around $1950 – $1975 was once the overhead resistance that the local gold price struggled to break through for a long time, so is now acting as “support”.
Silver is not too dissimilar with it also close to lows for the year. And previous overhead resistance currently of around $32.50 is acting as support.
It seems many are waiting to see when the Fed will follow other central banks with further easy money. Our view remains it is virtually inevitable (see below for why) but who knows when exactly.
And speaking of easy money, the “least surprising news” award for the week is a joint win shared between China and the ECB, who lowered their interest rates, and the Bank of England which extended its QE, all on the same day last week. This continues the trend of falling interest rates the world over.
This theme reminds us of the writings of Professor Antal Fekete. He discusses how interest rates could continue to fall for a long time as the Fed continues to halve the rate of interest as it has done for the past 30 years.
What this means is that a business who takes on new debt has an advantage over its competitors given it is paying less to service the debt than its competitors are. So it can have smaller margins, lower prices and undercut competitors. This however leads to the “destruction of capital” as when rates are lowered again, other competitors will then have the advantage of lower funding costs and so a vicious circle continues where businesses are continuously wiped out. More debt is accumulated but more capital is wiped out. I think we are right in saying that he believes the impact of cutting rates from 12% to 6% is the same as cutting them from say 2% to 1%.
Also the Fed is effectively stuck with close to 0% interest rates forever as the US debt is so high they can’t handle a rise in interest rates of even a small magnitude. Previously we had thought the US wouldn’t be able to stop rates from rising, but now it seems more likely that they actually can’t afford to let it happen and so they won’t. More likely they will create new money to buy bonds to keep the bond rates low and eventually to fund the ever widening gap between its incomings and outgoings. This is “debt monetisation” or central banker speak for money printing.
So effectively they could keep rates low “forever” – by continuing to half the rate ever closer to zero. How long will this forever be for? Until it no longer can. Which likely means the bond market ceases to exist, which likely means… who knows? The world would be a very different place.
Locally the big news on gold this week was the approval by DOC of an extension to Oceana Gold’s Reefton mine. So yesterday we penned a few quick thoughts as to why the “greens” should actually be embracing gold for this week’s feature article.
Back in 2001 when gold was under $300 an ounce, Jim Sinclair predicted the (at the time) crazy price of $1650 would be reached before the end of the (coming) bull market. A few years ago he went on to bet it would reach this level by the end of the 2nd week in January 2011. As it turns out he was wrong as it took until August of 2011. But bold to make a price and time prediction nonetheless and we won’t hold it against him that he was out by just 8 months or so!
So now that Mr Gold (as he is known due to getting out of the last bull market at the top) is saying the price of $3500 will be reached and exceeded we figure it’s worth bringing up. And of even more interest was that he believes that gold would reach a maximum valuation in “no less than one year from now to a maximum of three years from now”.
So put that in your diary – check back on 4th July 2015 and see if gold has reached its zenith.
Although now that we’ve said zenith – implying its highest point -perhaps Jim wouldn’t use that word. As we mentioned in this article from back in 2010 on when will you know it’s time to sell gold, Sinclair has commented in the past that he believes the powers that be will construct a loose link of the dollar to gold and it will trade in a price band but at much higher prices from here. So it might be that you don’t need to sell your gold. Although if it trades at his point of “maximum valuation” it will likely mean it’s a good time to exchange it for cheaper assets such as land, property, and businesses.
Sinclair seems to think that the “rig” in gold as he puts it, is nearing an end and we are due for the next leg up. If you agree or at least want to get an initial position in gold or silver at these lower levels, get in contact with David for a specific quote. You can again get a tube of 25 of the popular Canadian Silver Maple coins for under $1000 which hasn’t been the case too often for a while.
1. Email: firstname.lastname@example.org
2. Phone: 0800 888 GOLD ( 0800 888 465 )
3. or new and improved Online order form with indicative pricing
Have a golden week!
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The Legal stuff – Disclaimer:
We are not financial advisors, accountants or lawyers. Any information we provide is not intended as investment or financial advice. It is merely information based upon our own experiences. The information we discuss is of a general nature and should merely be used as a place to start your own research and you definitely should conduct your own due diligence. You should seek professional investment or financial advice before making any decisions.