How the Price of Gold Looks in 2018

A number of offsetting negative and positive catalysts are making it difficult to project where gold prices are headed over the next year or so. Here's a look at what is the most likely scenario to play out in 2018 and possibly 2019 for gold prices.

Implications of Fed Launching Quantitative Tightening

Fed launching quantitative tightening - 1st time in its history

QT era has extraordinary implications for stock markets and gold

“In October, the Committee will initiate the balance sheet normalization program..."

Fed realizes the extraordinary risk quantitative tightening is for QE-inflated stock markets,

so it is starting slow.

Even so, with two-thirds of the US economy driven by consumer spending, it could spiral out of control.

The Fed denied it was monetizing bonds because QE would only be a short-term crisis measure.

That was a lie.

When the Fed acquires bonds, they are added to its balance sheet.

After QE ended in October 2014, $3.6 trillion in bonds were still on the Fed's balance sheet.

That means over 98 percent of QE money is still in the economy.

It remains so high because the Fed is reinvesting proceeds from the maturing bonds and rolling it over in to new bonds.

That's done in order to keep the money working in the economy.

QT will start modestly in Q4' 17, with the Fed taking $10 billion a month in maturing bonds off its books.

It'll start with a mix of $6b in Treasuries and $4b in mortgage-backed securities.

This will gradually remove capital from the economy.

It will accelerate QT where it'll eventually reach $30 billion in Treasuries and $20 billion in mortgage-backed securities.

That represents $50 billion a month in capital taken out of the economy, or $600 billion per year.

It is unlikely it'll ever reach that level, but that's the stated plan.

Why is it doing this?

It knows there will be another recession coming down the road, and it has to reload in order to provide QE for that one. This is one of the main reasons why there should be no central banking in the world.

It's a major reason the Fed creates booms and busts.

What this means for QT is the Fed, by attempting to prepare for the next recession,
could in reality trigger it.

Assuming it goes ahead and implements its plan, it would take three to four years to complete.

Yellen said there is no intention to changing the depth and pace of QT.

Slowing it in response to a stock sell-off would communicate to the market a lack of confidence in the economy. That in turn would produce more of a sell-off.

The Fed has never done this before. Hang on, this is going to get even more volatile in over the next couple of years.

Central Banking Versus the Free Market: Who Wins?

One of the consequences or side effects of central banking monetary inflation (creating money out of thin air) is it masks over the benefit of the free market in lowering costs. That means the average person and investor doesn't understand how the battle between the free market and central banking is going, who is winning, and what is coming our way over the long term as a result.

As the size of the money supply continues to rise - which is what allows the faulty fractional reserve banking system to operate even while it's failing - it results in inflation. That is the reason the free market can be thriving, but the economy can have the appearance of struggling, because of the hidden costs associated with the monetary policies of central banks.

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Battle for Gold Floor Continues On

There are a lot of theories floating around out there making a case for or against the price movement of gold. Recently I made the case for the robust demand for physical gold in the form of jewelry and coins, as well as by central banks - especially central banks in China and other Asian countries - providing price support for the precious metal.

While that is real and is part of the equation, other elements are in play which could pressure the price of gold down even further. In other words, we may not have found a floor yet, even with the robust demand for physical gold.

continue reading on the downside risk for gold

 

German Central Bank Bringing Gold Back to Country

Germany had moved much of its gold to overseas storage facilities during the years of the cold war in fears the Soviet Union may invade the country and seize all its gold. The central bank of Germany, according to a German newspaper, is beginning to bring the gold back home.

According to the Daily Handelsblatt, the Bundesbank has plans to bring home all of the 450 tons it has stored in the Bank of France in Paris, and an undisclosed portion of the 1,500 tons it has stored in the Federal Reserve in New York.

A growing number of people have openly questioned the amount of gold still on hand in New York, as well as Fort Knox in Kentucky, which the repatriation of only a portion of the 1,500 tons of gold stored in New York for Germany makes one wonder why it isn't all being brought home under the loose money policies of central banks and governments around the world.

Germany will apparently bring about $200 billion in gold back to the country as valued at today's prices.

Overall, Germany has about 3,400 tons of gold in reserve.

Van Eck: Gold and Miners About to Soar

Joseph M. Foster, who is the lead investment team member for its flagship fund, Van Eck International Investors Gold Fund, said in an interview with The Gold Report that he sees gold prices and gold mining companies, especially midtiers and junior stocks, as ready to soar.

Citing the implementation of QE3 as a catalyst for gold, whereby the price of gold has jumped about 6 percent since August 2012, and the fund he is lead investor on up close to 20 percent since August, he sees that as continuing to be the performance of the asset class and mining companies serving it.

When asked if he sees this performance continuing, Foster said this:

Yes, for a couple of reasons. First, the boards of the large gold companies that have been missing expectations have woken up to the fact that management changes are needed. Some very high profile CEOs and COOs have departed. There has been a shift in focus toward more profitability and less growth. That shift toward profitability, shareholder returns and returns on capital should bode well for the industry.

Second, costs could be coming more under control in the months to come. The slowdown in the global economy caused a slowdown in mining activity across base metals, coal companies and iron ore companies. More labor is now available. Lead times for equipment and materials are shorter. That should translate into less cost pressure as we move through 2013. That could be another catalyst for the industry.

Catalysts that have driven gold and silver up remain in place, according to Foster, and there is nothing to suggest the United States will stop running budget deficits in the trillion dollar range any time soon. Central banks around the world are addicted to stimulus, and interest rates aren't going to come down in the next several years.

Expectations are gold and silver prices will continue to be supported and rise, and that could go on for possibly another decade or so.

As for larger miners, they won't be as desirable a place to invest in until they get a better hold on costs and predictability. Until that happens and profitability becomes the focus, they won't be the best place to invest in within the parameters of gold.

Gold Prices Today Rise on Bernanke's QE Increase Talk

Early in the trading session gold prices surged on the comments made by Federal Reserve chairman Ben Bernanke that he was open to increasing the $600 billion the central bank has already committed to injecting into the economy.

The already-applied $1.7 trillion has done nothing to create jobs, so it's hard to know why Bernanke would institute an even larger amount of money to waste and throw away, while ultimately created a huge increase in inflation.

Gold prices have pulled back right after noon, as usual, when prices skyrocket quickly, as traders and speculators take advantage of the quick jump.

Long term though, every time Bernanke asserts he's going to increase the money supply, it's good news for gold investors, as it's a prelude, over the long term, for gold prices to continue to soar, which they will for some time.

Gold prices went slightly negative after traders sold, with spot gold down to $1,414.40 an ounce, dropping $0.10 as of 1:30 PM EDT.

Citigroup (NYSE:C) Says Central Banks May Sell US Dollar in November

Citigroup (NYSE:C) said with conditions having been met which activate a trading rule, it sees central banks probably being net sellers of U.S. dollars in November.

Steven Englander, global head of currency strategy at Citigroup in New York, wrote, “If conditions one through three are met, the rule says buy euro-dollar on the seventh business day of the month, by which time the early reporting central banks in our sample will have reported their reserve levels, and hold the short dollar position through the seventh day of the next month.”

Reserve bank managers did three things which should trigger the sell-off said Englander. They increased their holdings in the U.S. dollar, did it on a valuation-adjusted basis, and was higher than the month before.

Under those conditions increased sales of the U.S. dollar are normally the outcome, concluded Englander.

Citigroup (NYSE:C) Raises Gold Estimate to $1,450

Citing expected quantitative easing, which is another word for inflation, to be instituted by the Federal Reserve, Citigroup (NYSE:C) sees gold prices over the near and medium term to rise to $1,450 an ounce.

That is based on the accurate assumption the value of the U.S. dollar and other currencies will fall against gold as they continue to be debased from the faulty policies of their central banks.

Gold, as expected, is experiencing a pullback today as it had been moving up at unsustainable levels, where investors were over-pricing the future into the precious metal.

Gold for immediate delivery did surge earlier in the session to $1,364.77 before falling back.

Whatever type of correction may come, it's largely irrelevant for gold investors, as there is absolutely nothing in the way at this time which will change the support underlying the surge in gold prices.

News of the ongoing sovereign debt crisis in Europe being worse than being spun by the mainstream media is part of that support for gold, along with expected inflation, weakening currencies, low interest rates, and numerous other factors.

A basket of currencies falling against the price of gold is among the more important supports that will continue because of the enormous printing of money.

Citigroup (NYSE:C), UBS (NYSE:UBS) Wealthy Clients Buying Gold

Although it varies from financial institutions to financial institution, wealthy clients of Citigroup (NYSE:C) and UBS (NYSE:UBS) have been acquiring large allotments of gold, especially clients of UBS.

Regional head for central, eastern and northern Europe Citigroup, Africa and Turkey, Samir Raslan, said clients are buying gold, although they weren't going overboard on it.

At the Global Private Banking Summit, UBS executive Josef Stadler was far more upbeat, saying wealthy clients have been buying gold bars by the ton, removing assets from the financial system.

UBS is advising clients to put between 7 percent and 10 percent of their assets in gold, or other precious metals.

Continuing weak economic data from the U.S., along with European sovereign debt fears continue to be a major factor in the decisions, although the primary driver of gold prices is the failed policies of the central banks which are poised again to implement quantitative easing.

All of this has resulted in gold rising not only against the U.S. dollar, but other currencies as well, making it even more attractive because of the volatile economies around the world.

There is little to suggest this is going to change in the near term, so gold will continue to rise and wealthy investors will protect some of their assets with the safe haven metal, as well as other precious metals. Gold and silver will remain kings in this sector for now.

Liberty Media's John Malone Clueless on Gold

Liberty Media Corp.'s Chairman John Malone was talking about his investment strategy recently, and said the strange statement concerning gold and why he wasn't investing in it.

Malone said this, “I’m not a gold bug. There’s just something about gold that seems artificial to me.”

Both assertions show his ignorance. First of all, being a gold bug has absolutely nothing to do with investing in gold. This reveals Malone doesn't even know what the historical definition of a gold bug actually is.

But his second statement is even more strange to me. How can gold be considered artificial? Someone must have instructed him with those words and outlook, as they make no sense whatsoever.

Someone has access to Malone who trumpeted in his ear that gold has no real role other than making jewelry. That would mean that there is no significant demand from that point of view, which of course is completely false.

Now there is little industrial demand (although there is some), but that has nothing to do with the artificiality of gold, from the way Malone is saying and viewing it.

He doesn't understand economics and central banks and what the effects of policies and actions has on the markets, and ultimately on the price and value of gold.

Things like the amount of money being printed by central banks, inflation, debasing of currencies, this are the more important factors in gold, of which safety is a key factor.

Malone obviously has a hard time understanding or grasping this, so he simply calls it seemingly an "artificial" commodity.

Maybe he's just irritated he hasn't been invested in it over the last decade, and has missed out on making millions.

US Gold Coin Sales Explode

As confidence in paper currencies continue to wain, sales of gold coins in the U.S. has soared in May, already twice what it was in May 2009, with several more days to go before the month ends.

So far in May, 158,000 ounces of gold coins have sold in the U.S., according to the U.S. mint.

Gold coins aren't used primarily for investment purposes, but for an alternative currency for those who believe geopolitical events, or the debasing of the currency could render paper money worthless, or at minimum, of little value.

When news of the bailout of Greece was agreed to by German officials, the people of Germany bought up all the available physical gold they could, and there wasn't near enough to go around, and supply wasn't close to meeting demand.

Germany has experienced the failure of their currency in the past, and the people of Germany know it could happen again, the reason why they ordered or bought every coin available.

Gold coin demand will continue to soar, as there's nothing out there that will change the direction we're going, and politicians have committed to extraordinary debt and printing of money in order to keep their jobs at all costs, as the general public still doesn't realize what the endless bailouts, government debt, and printing of paper money is going to them in the long run.

That is slowly changing, and hopefully enough will learn to not only make it through this crisis, but to help change things forever.

At this time, all of us should have some gold coins put away somewhere in case of emergency, and it'll hold its value no matter what happens to the existing currencies.

Make your decision before it gets impossible to acquire gold coins. If things continue to get worse, it'll get harder and harder to get hold of gold coins, and a lot more expensive as well.

Gold Falls as Illusion of Safety Permeates Investors

The attempted government bailouts around the world, along with announcements by major economic powers that they are going to prop up the failed global banking systems, has many investors seeing stars, while bringing the illusion of safety.

Those factors are keeping gold from moving upward over the last several days, and is putting downward pressure on the metal instead.

December delivery for gold dropped $16.50 to end the session at $842.50 an ounce on the Comex division of the New York Mercantile Exchange. This is the third straight trading day gold has fallen.

In an unprecedented move, some major central banks announced they'll be working together with the Federal Reserve to offer auctions for unlimited U.S. dollar funds. In the past the funds were capped. This is an attempt to ease up the credit crisis and put liquidity back into the market.

The Dow also enjoyed an expected rebound today, as it broke the all time record for a point gain in a day, surging by 936 points, finishing the day at 9387.61

With all the government interference across the world, gold will probably swing up and down in big ways from day to day, as the uncertainty and almost daily announcements by central banks and governments leave investors unsure where things will go.

Any smart investor should know that much of what is happening now are moves related more to PR than it is to practical help. It's to soothe the fears of people rather than make any true positive impact.

History has shown that government interference only prolongs the pain, not helps ease it.

Gold is ready on the sidelines waiting for any excuse for investors to run to it for safety. I don't think its run up is anywhere near over, but the interference in the market makes it much harder to measure.

Gold Futures Up by $25 after U.S. Federal Reserve Rate Cut

The cut by the U.S. Federal Reserve and several other central banks around the world helped gold futures rally again today, as at noon EST it was up by almost $25 an ounce to $911.80.

Investors have started to move their capital to the safe haven of gold as the U.S. dollar is starting to show signs of weakness after a period of strength.

U.S. Federal Reserve rates now stand at 1.5 percent, with the discount rate also dropping by half a point to 1.75 percent.

Other banks cutting rates were the European Central Bank, which dropped it rates from 3.75 percent from 4.25 percent. The Bank of England trimmed their rates from 5 percent to 4.5 percent. Other central banks cutting rates were the Swiss National Bank, The Bank of Canada and the Swedish Riksbank.

Now with more cuts hinted they're on the way, we should see gold start to make the upward run that has been expected for some time.