Uncertainty from Mideast turmoil also underpinning bullion
Charging up to the key $1,400 threshold, gold soared almost 2% on Friday to hit new two-month highs after a new U.S. housing report suggested the U.S. economy is in no shape to digest tapering from the Federal Reserve.Gold rose 1.6% for the week for its third consecutive weekly rise, climbing in six out of the past seven weeks.
Silver also gained more than 4% to score a three-month high as the dollar fell and U.S. Treasury bond yields dropped.
The Commerce Department's July report on new single-family home sales showed a 13% plunge, sinking to their lowest levels in nine months. Moreover, "the median home sale price decline continued, and in July dropped to $257.2K down from $258.5," Zero Hedge noted.
"The new home sales number is terrible, so the fear is clearly that higher interest rate is going to topple this housing recovery, which means the Fed has to ease and not tighten,"said Axel Merk, portfolio manager of Merk Funds.
Other factors in play
"The new home-sales data tells us that all is not well with the economy, and the Fed needs to continue to support growth,"said Tom Power of R.J. O'Brien & Associates. "The housing recovery is an important thing that the Fed will be looking at when it makes its decision on the timing of the tapering."
RBC Capital Markets' George Gero cited a few other reasons for gold's advance. "The Jackson Hole interviews [are] helping, downgrades of large banks [are also] helping and [the] Middle East[s] continued problems [are] helping gold rally," he wrote.
"A solid base may have formed" in gold
With gold having risen about 11.5% since July, CNBC is suddenly sounding bullish again, publishing an article headlined "Gold's rebound seems believable this time."
"As investors shun risk assets such as emerging market equities and currencies, gold is quietly gaining traction, clawing its way back up to the $1,400 level," it said. "The strength of bullion amid growing expectations for the U.S. central bank to scale back its bond buying program in September is a sign that a solid base may have formed in the yellow metal."
"If tapering does occur in September, it will be more 'buy the rumor, sell the fact,'" Compass Global CEO Andrew Su told CNBC. "Certainly the entire market is expecting it already. We'll see gold prices continue to rise quite strongly over the next couple of months. ...
"The reaction to (Fed) minutes was lackluster. Under most circumstances you would have gold prices to fall a lot more, and they haven't. That reflects the strong buying and heavy interest in gold particularly out of Asia," said Su.
"There's going to be a spectacular rise"
One investor who might say he saw this rally coming is Euro Pacific Capital chief Peter Schiff, who appeared on Yahoo! Finance to make just such a bullish argument. Gold's fall into bear territory this year is only temporary, he said.
"I think everything supports the fact that this is yet another buying opportunity in a string of buying opportunities," he said. "In fact, I think this may be the best buying opportunity yet."
Why? "Physical gold is disappearing and ultimately the short sellers have to be able to deliver the commodity they are shorting and they are not going to be able to do that," he predicted. "I think (the speculators and shorts) won't be able to buy it back," he says. "I don't think that gold is for sale, at any price, because I think it is in strong hands and I think there's going to be a spectacular rise when these forces try to work themselves back out."
"Gold will be a good thing to have" in debt crisis
Count John Ing of Maison Placements Canada as another longtime gold bull. He thinks the coming budget showdown in Washington will help rekindle gold's bull run:
"There is the looming third round of the debt ceiling debacle,"he wrote. "In the first round, the Republicans demanded one dollar of spending cuts for every dollar of new borrowing.Obama refused and we ended with the so-called sequestration. During the second round of debt ceiling negotiations, the Democrats passed a budget but the Republicans balked and sequestration was invoked. Now the third round of the debt ceiling discussion looms this fall with the Republicans calling for a repeal of Mr. Obama's healthcare legislation. The federal debt limit must be raised, but this time it raises the threat again of a government shutdown or worse, default. Even after raiding the government's piggybank, the debt ceiling will be reached and the government faces a partial or complete shutdown if there is no agreement, sequestration: part deux? The US dollar has already lost 5%. Gold will be a good thing to have."
13 more reasons gold will rise
Golden Jackass newsletter publisher Jim Willie, a longtime gold bull with a Ph.D. in statistics, has compiled a new list of reasons why he thinks the metal eventually will hit $5,000. His13th reason is especially compelling:
13. Explosive Growth in Demand for Coins, Bars, Jewelry across Entire World
"The growth for various forms of precious metals at the retail level had been brisk before the turn of 2011 when Quantitative Easing was introduced. The bond monetization is hyper monetary inflation by any other name. The zero bound interest policy kept the pressure on retail Gold & Silver sales across the world, including in the United States and Europe. ... Since QE became the norm, and after it became clear that QE to Infinity would be the permanent policy, the growth for retail precious metals has turned exponential. ... Demand has risen in direct response to both lower price and vanished trust in the system, including gold futures contract delivery. Like all Gold bull markets in the past, the investment demand breaks the spine of the illicit gimmicks and banker conmen criminal set. The population will demand Gold & Silver bars, coins, talens, biscuits, and jewelry. The people will pay whatever price eventually, and certainly premiums, until Gold is properly priced an order of magnitude higher. The equilibrium in the gold market will come when Gold is above $5000 per ounce."
More information can be found online at http://www.goldbullionadvisors.com
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