What do you need to know about gold?
By: Paul Buzby
Today, gold fell to $1,564.60, its lowest level in seven months! Since a year ago, events have shifted incentives towards strengthening the U.S. dollar. While there will be some fluctuation in the market, the trend will be to strengthen the dollar. As the dollar strengthens, commodities such as gold will weaken. Gold has seen some recent effects of a strengthening dollar after the minutes from the Federal Open Market Committee showed many members favored ending the Fed’s bond-buying efforts before the start of 2014.
We warned you of this…
when we published our End Game of Quantitative Easing article back in January 2013 and the Collapse of Gold Prices article in July 2012. In the End Game of Quantitative Easing article, economist Dr. Scott Sumner states, “The U.S. growth is relatively strong, the dollar will strengthen against the euro and yen. As economic conditions in the U.S. begin to normalize, gold will become less appealing to investors.”
Now that the election is over, it is in the U.S. government’s best interest to strengthen the dollar, raise interest rates, and make permanent tax increases, spending increases as well as make new regulations. The U.S. economy can’t get back to a 3% to 4% GDP growth on a weak dollar. The Federal Reserve is now looking at strengthening the U.S. dollar without causing the recovering economy to collapse.
Gold fell again this week. Next week we may see gold rebound from some of its losses as we near the spending sequester. This will offer gold owners an opportunity to decide whether to hold or sell their gold. If House Republicans decide not to stop the spending sequester, we could see gold drop even further. It is important to note, this is the first time in 4 years that it is advantageous to not stop the spending sequester. If these automatic cuts are allowed to take place, the dollar will strengthen. This same scenario may occur in two months with the debt ceiling limit. Also, look for the Federal Reserve to end QE3 and Operation Twist this summer and look at raising interest rates by .25% in the winter.
If you own gold, and want to see what is best for your gold portfolio, contact one of our consultants for an evaluation. They can help you make sure that you are prepared if gold prices decline further.