Gold logs late rebound as Fed keeps money-printing mechanisms in overdrive - Wealth Managers

Bullion finishes down for day, but July is its biggest monthly gain since January 2012

Spot gold was cutting early losses Wednesday afternoon after the Federal Reserve made clear that its quantitative-easing bond-buying program will remain in place at $85 billion a month. Bullion finished July up more than 6% for its best month since January 2012.

Gold had fallen about 1%, under $1,310, after positive GDPand ADP jobs reports were seen as drivers for the Fed to carry through with tapering stimulus later this year.

Second-quarter GDP unexpectedly came in at 1.7%, on predictions of 1%; however, first-quarter performance was slashed to 1.1%, from 1.8% for "to the worst miss in 27 months," Zero Hedge noted.

"The economy is expanding but growth remains disappointing," said Gus Faucher, senior economist at PNC Financial Services.

Meanwhile, the ADP private-sector payrolls report tallied 200,000 jobs, also surpassing forecasts. On Thursday, weekly initial jobless claims will be released, followed by Friday's huge July employment report from the Labor Department. With the Fed's stimulus policy linked to job growth, that nonfarm-payrolls report is the most highly anticipated data of the week.
Fed's view on economy darkens
Gold sank and almost tested the key $1,300 level on the positive numbers until the Fed's statement was released and its immediate implications processed. "The Fed said that the economy has expanded 'at a modest pace,' during the first half of the year and also noted that mortgage rates 'have risen somewhat,'" The Wall Street Journal reported. "The description of growth as modest appears to be a slight downgrade from the 'moderate' growth Fed officials had been seeing in the economy. It is the first time in at least three years that the Fed has used the term 'modest' to describe the economy in its formal policy statement."

Perhaps more significantly, the Fed warned of low inflation. "It said that inflation 'persistently below its 2% objective could pose risks to economic performance,' although it expects inflation will move back towards 2% over the next 18 months. and is also a new expression of concern in the statement,"MarketWatch reported.
Goldman predicts downward revisions ahead
What the new GDP numbers mean is that the Fed's second-half forecasts are unlikely to play out, and full-scale tapering could fade from fast-track status.

"In light of real GDP growing by only 1.4% at an annualized rate in the first half of 2013, it is unlikely that growth in the second half will be strong enough for the Fed's 2.3 to 2.6% real GDP growth projection to be realized," said Goldman Sachs chief economist Jan Hatzius. "As a result, we would expect a downward revision to the Fed's 2013 growth forecast in the September Summary of Economic Projections."

In order for the Fed to continue forecasting 2.3-2.6% real GDP growth in 2013, it must expect GDP to grow 3.2% in the second half of this year.
Rising rates can't slay gold bull
The Fed noted that mortgage rates have been rising, and so have bond yields. George Gero, vice president at RBC Capital Markets, said gold was pressured by higher Treasury yields, seen as a gauge of short-term interest rates, a stronger economic outlook, and uncertainty related to the Fed statement.

However, even if rates do rise, gold can still thrive, according to a new report from the World Gold Council on Wednesday. With emerging markets accounting for about three-quarters of gold demand yearly, higher U.S. interest rates may have less influence on gold prices than expected, according to WGC's latest "Gold Investor" report. Between October 2003 and October 2006, gold posted a cumulative return of almost 60 percent when U.S. real interest rates jumped from -1 percent to 3 percent, the report showed.
Gold "regaining its glow," say experts
With gold still holding the $1,300 level and posting its best month since 2012, more analysts are emerging to predict a stronger second half. On July 20, Barron's issued a reporttitled "Gold is regaining its glow." Steve Briese, publisher of the Bullish Review of Commodity Insiders newsletter, was interviewed. Briese says that because of bullish commercial trading trends in the Commodity Futures Trading Commission's weekly Commitments of Traders report, gold's rapid decline appears to have halted at $1,200. Both fundamental factors and "insider" trading data point to a rebound to $1,550.

And the respected analyst Don Coxe of Coxe Advisers toldBull Market Thinking: "I don't think it's a matter of if, but when, that we're going to see an upside breakout in gold. I remind you that in the '70s ... the huge breakout in gold did not occur at a time of the worst inflation. ... It's once the people lose faith in the paper money and the policies that are being pursued, [that] you get the rush into gold. ...

"The drama is unfolding where you've got this gigantic short position, and eventually the shorts are going to get scared. So it looks like from my perspective, that we've seen the low in gold, and now we're going to watch who loses the most when gold moves to the upside, which ... is virtually inevitable."

And high-profile gold bull David Einhorn of Greenlight Capital dismissed concerns that he's turned bearish on the metal. "During the gold selloff in the quarter, we sold a small amount of gold to take advantage of opportunities in gold-mining stocks that were in freefall," said Einhorn, the chairman of the reinsurer. "Overall, we modestly increased our exposure to this area, and our view towards gold has not changed."

Finally, Mark Mobius of Templeton Emerging Markets Group urged investors to hold a long-term view in a July 30Bloomberg interview. "At the long term the gold price will rise. What you're seeing is a dissonance between the actual demand, real demand, and the derivative market. And derivatives have been causing quite a lot of volatility in the market, but from a demand -- actual physical demand point of view -- it's rising. When you have this kind of situation, at the end of the day, it's physical demand that will determine the price. So we believe that from a longer-term point of view, gold prices will trend upwards."

More information can be found online at http://www.goldbullionadvisors.com