Gold Prices

Why Are Gold Prices Down?

gold

Gold and to a lesser extent silver got hammered pretty hard today (Friday) - leading many of our investors to write in and ask why gold prices are down so much this week.

Gold closed Friday at its lowest level since July 2011. In the last two days, gold was off about $70 and silver off about $1.60 at their worst points.

So what's going on?

Well, in the search for answers I can see a few reasons.

It started Tuesday, when UBS cut its average gold price forecast for 2013 to $1,740 from $1,900. UBS cited risks the U.S. Federal Reserve would end its current QE sooner than expected, a move into equities, low inflation, improving economic growth, and a stronger U.S. dollar.

Then Wednesday, the leaked Federal Open Market Committee (FOMC) meeting minutes showed that several members believe the costs of the $85 billion monthly bond purchases outweigh the benefits. We're being led to believe that "many participants" think improving unemployment could justify slowing up on bond-buying "at some point over the next several meetings."

Remember that these are not minutes where members' comments are actually written down word-for-word (like they ought to), these are carefully crafted statements to influence opinion. The Fed is known to try to "manage expectations, so it wants it to look like bond-buying will end sooner than later.

But I, for one, don't buy it.

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Goldman Sachs Is Manipulating Gold Prices Right Before Your Eyes

Company GS

If you want a lesson on how to manipulate gold prices, you need only look at what Goldman Sachs Group Inc. (NYSE: GS) has been doing over the past few months.

Goldman set the table by predicting a turn in gold prices back in December 2012, which no doubt contributed to the precious metal's 5% decline in the first two months of the year.

At the end of February, Goldman issued a research report that said the big Wall Street bank had soured on the yellow metal, and dropped its three-month target for gold prices from $1,825 an ounce to $1,615, its six-month forecast from $1,805 to $1,600, and its one-year outlook from $1,800 to $1,550.

Then, just yesterday (Wednesday), Goldman doubled down on its negative outlook for gold prices.

The bank's new targets for gold prices are $1,530 in three months, $1,490 in six months and $1,390 in one year.

The double whammy - two downgrades in two months - had its intended effect, as gold prices fell 2%, to $1,558.80, after Goldman released its report. It was the biggest single-day percentage drop for gold in nearly six months.

"If you've ever suspected gold prices are being manipulated, you're not alone - and you're right, they are," said Money Morning Chief Investment Strategist Keith Fitz-Gerald.

The proof is right in front of us.

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This Gold Prices Chart Points to a Looming 24% Jump

GoldPrices2001_2013

Despite a pullback in gold prices, hold on to your gold. In fact, look to buy more.

You see, thanks to record highs for the U.S. stock market, a notable shift from defensive assets to "risk-on" trades has occurred.

The yellow metal slumped 1.4% to $1,552.80 Wednesday marking a nine-month low. That's after gold prices slid below $1,600 an ounce in Q1 on hints of a global economic rebound. The slide prompted market participants to shed gold holdings.

It's "certainly understandable" for investors to have sold gold following a 400% appreciation over the last decade and move into stocks, said Malcolm Burne, chairman of the Golden Prospect Precious Metals investment trust.

But, here's why the tide may be about to turn.

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Does Investing in Gold Top Your List of "Best Investments"?

gold

Even though the Dow Jones Industrial Average and Standard & Poor's 500 Index have hit record highs this year, investing in gold remains the top investment pick in CNBC's latest All-America Economic Survey.

The March poll shows the yellow metal is the favored investment choice among 35% of respondents, beating real estate at 27% and stocks at 21%. This is the second year that investing in gold has topped the list of what those surveyed consider the "best investment" to make now.

While survey participants are more optimistic this year than last about the stock market, 21% are uncertain if now is a good time to dabble in stocks, up from 11% in December 2009.

Those who believe the current environment make it a good time to buy stocks jumped from 31% in November to 40%, the highest amount since December 2009.

Moreover, in spite of the improved outlook for stocks, the overall view of the current state of the economy remains bleak. Currently, 60% of those surveyed are pessimistic about the U.S. economy, up from 56% in November.

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Gold Prices Will "Explode" When These Investors Start Buying

Gold bars small

Until recently, an entire class of investors that control a huge pool of money - more than $27 trillion worldwide - have almost entirely ignored gold.

But lately, this group has begun to show more interest in the yellow metal, a trend that ultimately will exert massive upward pressure on gold prices.

We're talking about pension funds, which typically have had little interest in gold.

But with more traditional investments like bonds at historic lows, many pension funds aren't getting the returns they need to fund future obligations.

And with central banks debasing most major currencies and risking higher inflation, pension fund managers almost have no choice but to consider adding gold.

It's already started in Japan, which has about $3.4 trillion in pension funds - second only to the U.S., which has about $20 trillion.

In response to Prime Minister Shinzo Abe's pledge to spur inflation by printing more yen, Japanese hedge fund managers plan to double their gold holdings from about $500 million to $1.1 billion over the next two years, primarily by investing in gold exchange-traded funds (ETFs).

Itsuo Toshima, who represented the Tokyo office of World Gold Council for 23 years through 2011 and now advises Japanese pension fund managers, sees gold becoming a standard asset as inflation becomes more of a threat - with major consequences for gold prices.

"Pension money invested in bullion is "peanuts' at the moment," Toshima told Bloomberg News. "If 1% of their total assets shift to the metal, the gold market would explode."

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Can Gold Miners Increase Profits Through Spin Offs?

After more than a decade of merger mania, gold miners are now looking to spin off some of their acquisitions.

By doing so, the gold miners hope for better results after abysmal performance recently, as gold prices have fallen. And, as always, gold miners' profits rise and fall much faster than the yellow metal's price.

The underperformance of the Market Vectors Gold Miners ETF (NYSE: GDX) compared with that of the SPDR Gold Trust (NYSE: GLD) bears this out. GDX is down 20.5% since the end of last year, while GLD is down 4.8%.

Investors are starting to get really impatient with the gold miners - so much so that billionaire hedge fund manager John Paulson is arguing some of the world's biggest gold mining companies, including AngloGold Ashanti Limited (NYSE: AU), spin off some of the mines that they have acquired through M&A over the past 10 years.

Paulson, the largest shareholder of GLD and AU, thinks the sum of the parts is greater than the value of the whole mining company. Paulson certainly can't be pleased with AU's 23.5% decline so far in 2013.

Other gold majors, including Gold Fields Limited (NYSE: GFI) and Barrick Gold Corp. (NYSE: ABX), have already spun off some of their mines or are in the process of doing so.

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Don't Shy Away from Investing in Gold

Gold prices were up today (Thursday) as the U.S. dollar retreated against other currencies, leading foreign buyers to favor investing in gold



The most actively traded gold contract, for April delivery, rose $2.70, or 0.1%, to settle at $1,590.70 a troy ounce on the Comex division of the New York Mercantile Exchange.

"The gold market is getting propped up by a break in the dollar index," Ira Epstein, director of the Ira Epstein division at the Linn Group, told The Wall Street Journal. "The problem is, people are not buying into the rally, they're buying it on the dips."

If gold prices cross the psychologically important $1,600-an-ounce level, confidence in investing in gold could strengthen.

Until then, it looks like investors will stay busy trying to profit from the record-high Dow.

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Gold and Silver Prices Boosted by These Global Moves

Gold Price trends this year

Gold and silver prices both marched toward their largest gains in more than a week Tuesday joining the uplifting mood on Wall Street. As the Dow Jones Industrial Average reveled in a historic rally that took the benchmark to a record high, commodities also soared. 

Gold prices settled Tuesday's trading session up $2.50, or 0.2%, at $1,574.90 an ounce, supported by stimulus chatter and a weaker dollar. The safe haven metal had reached as high as $1,585.80 an ounce intraday, on course for its biggest leap since Feb. 26.

Year-to-date, gold has dipped 5.7%. The commodity logged its fifth consecutive month of declines in February, marking its longest stretch of declines since 1997.

Silver prices rose 1.7% to $28.97 in early trading, their biggest gain in more than a week. The white metal ended the day at $28.81.

While silver's slip since January has been more modest than gold's, it's well below the $34.89 it traded at during the same period a year ago.

But loose monetary policies worldwide, geopolitical uncertainties, rising oil prices and renewed fears of inflation should support, if not boost, both gold and silver prices in the months ahead.

Aggressive Global Stimulus Here to Stay

Driving gold and silver prices higher Tuesday were comments from Federal Reserve Vice Chairman Janet Yellen.

At the National Association for Business Economics conference Monday, the Federal Open Market Committee's (FOMC) Yellen defended the bank's $85 billion a month of bond purchases.

"At this stage, I do not see any (risks) that would cause me to advocate a curtailment of our purchase program," Yellen said.   

Yellen's sentiments mirror that of Fed Chief Ben Bernanke, who thinks continued stimulus will be good for the U.S. economy. Acknowledging there are risks from the Fed's aggressive efforts to stoke the anemic U.S. economy, Yellen added there are also risks from not being aggressive enough.

This news from overseas is also bullish for gold and silver prices...

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Gold Prices Are Being Manipulated and Here's What To Do About It

If you’ve ever suspected gold prices are being manipulated, you’re right, they are.
Against the backdrop of fiscal mismanagement, political incompetence, and failed austerity measures, the world's biggest traders have all bet heavily on gold. Lately, they've been pulling out all the stops to get what they want (while laughing all the way to bigger bonuses).
Today, I want to talk about who "they" are and share a few tricks you can use to capitalize on their actions without being taken to the poorhouse.
Here's how to play the game to win.

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