SocGen analyst reiterates stratospheric gold forecast as Syrian crisis drags on
Gold closed below $1,400 Friday but has advanced almost 6% in August, racking up its second straight month of gains while the stock market logged its biggest monthly slide in over a year. Bullion's rally lost some steam as uncertainty grew over the timetable for a U.S.-led strike on Syria and the dollar rallied to a four-week high, but September has historically been gold's best-performing month."Gold is under pressure from a firm U.S. dollar and lower oil prices after the West debates whether to attack Syria,"Commerzbank analyst Eugen Weinberg said.
But buckle up your seat belts, because after Monday's Labor Day holiday, gold's seasonably strongest period of the year starts as India's festival- and wedding-driven buying season kicks off -- combined this year with potentially major turmoil ahead from an outbreak of war over Syria, Washington's debt-ceiling and budget battles, the Federal Reserve's stimulus tapering, and the pending exit of Fed chief Ben Bernanke.
Gold's "Love Trade" to fuel Eastern demand
As U.S. Global Investors chief Frank Holmes told Fox Business: "There's a seasonal pattern, which I like to identify as the 'Love Trade,' where 55% or almost 50% of all gold demand is for love, and it's predominately coming out of China and India, Southeast Asia, the Middle East, and Turkey. And we're in that mode, and the bottom takes place in June, July, and we get a rally all the way to Chinese New Year."
And as The Wall Street Journal noted Friday, "U.S. stocks weakened, looking to close out the biggest monthly slide in over a year for major benchmarks, as traders eyed muted readings on consumer spending and income."
"We've been seeing profit-taking across the board," R.J. Grant of KBW Inc. said, adding that uncertainty surrounding Syria, the Feds potential September taper, and a looming debate on the U.S. government's debt ceiling are making some investors reluctant to take on much risk.
"September, historically the worst month for stocks"
"Anxiety has been building ahead of September, historically the worst month for stocks," CNBC reported. "This September will be especially difficult to navigate with the monthly employment report next week and the Fed's decision whether to taper its bond buying or not, expected Sept. 18. Syria has entered the picture as another potential negative in just the last week."
Art Cashin of UBS raised some key concerns as well, focusing on recent comments by Richmond Fed PresidentJeffrey Lacker. "While it didn't get wide coverage, he said some really important things," Cashin said, including Lacker's opinion that the labor market has met the condition for the Fed to begin a tapering of its asset purchases.
What is "far more important," Cashin said, is that Lacker suggested the taper would coincide with a reduction of the Fed's support of the mortgage-backed securities market. "With housing looking like it might be getting weak, that troubled the market."
Economy "just above stall speed"
However, Cashin said the comment that "hit me over the head like a two-by-four" was Lacker's view of future U.S. GDP growth. The Fed president said he expects that growth will average "about 2% going forward."
This level is "just above stall speed," Cashin said. "It's going to be dangerous to start tapering if you're just above stall speed."
More warning signs emerged in new economic data out Friday. "U.S. consumer spending barely rose and inflation was tame in July, offering a cautionary note on the economy as the Federal Reserve weighs cutting back its massive bond-buying program," Reuters reported. "Spending, which accounts for more than two-thirds of U.S. economic activity, will likely struggle to regain momentum as other data on Friday showed consumer sentiment fell this month. The reports added to a raft of data that have suggested a loss of steam in the economy early in the third quarter."
"No second-half acceleration (in economic growth), just more of the same," said RBS chief economist Michelle Girard.
Gold's "move may be just beginning"
In contrast, things are looking very much up for gold. "Gold and silver have added support from uncertainty surrounding the U.S. debt ceiling, stock markets and currency moves,"MarketWatch reported.
"The move may be just beginning," said Phil Flynn at thePrice Futures Group. "Gold seems to be a place where safe harbor is being sought. Not only from those crazy gold bugs that are worried about the potential for World War III coming out of the Syrian conflict, but because of the plunging currencies and stock markets in the emerging markets."
Mike Paulenoff of MPTrader.com argued that the bottom appears to be in for gold: "The big-picture pattern in spot gold suggests strongly that a major correction within the 1999-2011 bull market transpired between the Sept. 6, 2011, high at $1,921.50 and the June 24, 2013, low at $1,180.04. In addition, a new bull phase, or upleg, is in its infancy that should propel spot gold to new all-time (nominal) highs in the weeks and months ahead. ...
"If any forthcoming weakness in spot gold can hold above $1,395-$1,390, the pattern off the low will remain exceptionally powerful and promising, and will argue that the next up-move should propel prices toward a test of the major breakdown plateau at $1,522-$1,527, on the way to $1,560-$1,590."
SocGen stock bear predicts $10,000 gold
Respected gold guru James Turk also sounded bullish in an interview with King World News: "The big rallies since June in both in gold and silver have been nothing short of spectacular, but this is just the beginning. The moves higher in gold and silver will be absolutely breathtaking in the future."
And perhaps the most breathtaking gold forecast of the past week has come from Societe Generale analyst Albert Edwards:
"The emerging markets 'story' has once again been exposed as a pyramid of piffle. The EM edifice has come crashing down as their underlying balance of payments weaknesses have been exposed first by the yen's slide and then by the threat of Fed tightening. China has flipflopped from berating Bernanke for too much QE in 2010 to warning about the negative impact of tapering on emerging markets! It is a mystery to me why anyone, apart from the activists that seem to inhabit western central banks, thinks QE could be the solution to the problems of the global economy. But in temporarily papering over the cracks, they have allowed those cracks to become immeasurably deep crevasses. At the risk of being called a crackpot again, I repeat my forecasts of 450 for the S&P, sub-1% US 10y yields and gold above $10,000."
"We've been seeing profit-taking across the board," R.J. Grant of KBW Inc. said, adding that uncertainty surrounding Syria, the Feds potential September taper, and a looming debate on the U.S. government's debt ceiling are making some investors reluctant to take on much risk.
"September, historically the worst month for stocks"
"Anxiety has been building ahead of September, historically the worst month for stocks," CNBC reported. "This September will be especially difficult to navigate with the monthly employment report next week and the Fed's decision whether to taper its bond buying or not, expected Sept. 18. Syria has entered the picture as another potential negative in just the last week."
Art Cashin of UBS raised some key concerns as well, focusing on recent comments by Richmond Fed PresidentJeffrey Lacker. "While it didn't get wide coverage, he said some really important things," Cashin said, including Lacker's opinion that the labor market has met the condition for the Fed to begin a tapering of its asset purchases.
What is "far more important," Cashin said, is that Lacker suggested the taper would coincide with a reduction of the Fed's support of the mortgage-backed securities market. "With housing looking like it might be getting weak, that troubled the market."
Economy "just above stall speed"
However, Cashin said the comment that "hit me over the head like a two-by-four" was Lacker's view of future U.S. GDP growth. The Fed president said he expects that growth will average "about 2% going forward."
This level is "just above stall speed," Cashin said. "It's going to be dangerous to start tapering if you're just above stall speed."
More warning signs emerged in new economic data out Friday. "U.S. consumer spending barely rose and inflation was tame in July, offering a cautionary note on the economy as the Federal Reserve weighs cutting back its massive bond-buying program," Reuters reported. "Spending, which accounts for more than two-thirds of U.S. economic activity, will likely struggle to regain momentum as other data on Friday showed consumer sentiment fell this month. The reports added to a raft of data that have suggested a loss of steam in the economy early in the third quarter."
"No second-half acceleration (in economic growth), just more of the same," said RBS chief economist Michelle Girard.
Gold's "move may be just beginning"
In contrast, things are looking very much up for gold. "Gold and silver have added support from uncertainty surrounding the U.S. debt ceiling, stock markets and currency moves,"MarketWatch reported.
"The move may be just beginning," said Phil Flynn at thePrice Futures Group. "Gold seems to be a place where safe harbor is being sought. Not only from those crazy gold bugs that are worried about the potential for World War III coming out of the Syrian conflict, but because of the plunging currencies and stock markets in the emerging markets."
Mike Paulenoff of MPTrader.com argued that the bottom appears to be in for gold: "The big-picture pattern in spot gold suggests strongly that a major correction within the 1999-2011 bull market transpired between the Sept. 6, 2011, high at $1,921.50 and the June 24, 2013, low at $1,180.04. In addition, a new bull phase, or upleg, is in its infancy that should propel spot gold to new all-time (nominal) highs in the weeks and months ahead. ...
"If any forthcoming weakness in spot gold can hold above $1,395-$1,390, the pattern off the low will remain exceptionally powerful and promising, and will argue that the next up-move should propel prices toward a test of the major breakdown plateau at $1,522-$1,527, on the way to $1,560-$1,590."
SocGen stock bear predicts $10,000 gold
Respected gold guru James Turk also sounded bullish in an interview with King World News: "The big rallies since June in both in gold and silver have been nothing short of spectacular, but this is just the beginning. The moves higher in gold and silver will be absolutely breathtaking in the future."
And perhaps the most breathtaking gold forecast of the past week has come from Societe Generale analyst Albert Edwards:
"The emerging markets 'story' has once again been exposed as a pyramid of piffle. The EM edifice has come crashing down as their underlying balance of payments weaknesses have been exposed first by the yen's slide and then by the threat of Fed tightening. China has flipflopped from berating Bernanke for too much QE in 2010 to warning about the negative impact of tapering on emerging markets! It is a mystery to me why anyone, apart from the activists that seem to inhabit western central banks, thinks QE could be the solution to the problems of the global economy. But in temporarily papering over the cracks, they have allowed those cracks to become immeasurably deep crevasses. At the risk of being called a crackpot again, I repeat my forecasts of 450 for the S&P, sub-1% US 10y yields and gold above $10,000."
More information can be found online at http://www.goldbullionadvisors.com
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