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Gold Prices 'Bullish' as ETFs Swell, Equities Drop with Bond Yields, Only Inflation 'Can Fix Western Debt'

Friday, February 24, 2017 7:18
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Adrian Ash is head of research at BullionVault, the world-leading gold trading & ownership service online…

GOLD PRICES jumped in London trade Friday, hitting new post-Trump election highs at $1258 per ounce as the Dollar fell again, reversing the week’s prior gains to 6-week highs versus the Euro while world stock markets retreated further from their new all-time highs.
Government bond prices rose, pushing longer-term interest rates lower.
Gold priced in the US Dollar has now risen for 8 of the last 9 weeks.
With the MSCI World Index of global equities hitting new record highs on Tuesday, equity investment funds saw net inflows for the 8th week running, says a note from analysts at Bank of America Merrill Lynch, adding $8.5 billion from 7 days before and $60.8bn for 2017 to date.
Now worth an outstanding total of $74bn in contrast, exchange-traded trusts backed by gold have also seen continued inflows, says Dutch bank ING, with the total number of shares in gold ETFs swelling 3% so far this month.
“With still a large amount of political uncertainty for this year, this position is likely to continue growing,” says ING.
With the gap between French bond yields hitting the widest since the Euro debt crisis of 2010-2012, German 2-year Bunds now offer an annual yield worse than minus 0.9%, a fresh record low, on what Bloomberg reckons “looks like [the German Bundesbank] buying at the front end of the yield curve” after a change in European Central Bank rules on national intervention.
Chart of 2-year German Bund yields, last 5 years. Source: Bloomberg
The Euro’s rebound on the FX market curbed gold’s gain for French, German and other currency union investors on Friday, edging it back from near 5-month highs at €1188 per ounce, still more than 8% higher for 2017 to date.
Gold priced in the British Pound meantime held above £1000 per ounce – a price first seen in mid-2011, and 20% below the peak of 2 months later.
Now selling government bonds, “Our long-term outlook [on gold prices] remains bullish,” said hedge-fund manager David Einhorn of Greenlight Capital on a call with clients this week for the metal.
“The new [US] administration comes with a high degree of uncertainty,” said Einhorn – who replaced a gold ETF position with physical bullion in 2009 – “and its policy initiatives appear to be focused on stimulating growth and, with it, inflation.”
“The Western world has insane amounts of debt,” writes MoneyWeek magazine’s Merryn Somerset-Webb in the Financial Times, warning that history says it will only be “dealt with by inflation.
“Gold is the best hedge there is against that. I still hold it…and I will until the finances of our governments are firmly under control.”
The giant GLD gold-backed ETF yesterday held onto last week’s 0.3% shrinkage even as prices rose Thursday to new 3-month highs.
The giant SLV silver trust also held unchanged in size.
Silver prices jumped 2% on Friday from last week’s finish, trading back at $18.36 per ounce – the level reached just before last June’s UK Brexit referendum saw the metal jump 15% in a fortnight to touch 2-year Dollar highs.

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the mining-sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


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