Gold Price “Has a Lot Further to Go” on the Upside

In a CNBC interview, noted hedge fund manager Kyle Bass said that he believes gold will continue to go higher due to central bank's continuous growing debts and the printing of their paper currencies. Money creation benefits gold and therefore, gold still has a long way to go.

Tuesday, March 13, 2012, 10:03am EDT
Written by GoldAlert Staff
Gold Alert

GOLD PRICE NEWS – The gold price dipped $7.54, or 0.4%, to $1,691.66 per ounce Tuesday morning ahead of today’s Federal Reserve meeting. There, Fed Chairman Ben Bernanke and his fellow central bankers are expected to not make any changes to their existing set of accommodative monetary policies. In overnight trading the price of gold hovered near $1,700, but turned lower after the February U.S. retail sales report showed the largest increase in five months. Silver fell modestly in conjunction with the gold price, by $0.12, or 0.3%, to $33.48 per ounce.

The gold price began the week on Monday with a modest decline of $13.57, or 0.8%, on its way to $1,699.20 per ounce. Weakness in the price of gold was not accompanied by strength in the U.S. dollar, however, as the greenback fell 0.3% against a composite of the world’s leading currencies. With its slide, the price of gold snapped a three-session winning streak, but did remain higher by 8.7% in 2012.

Silver retreated alongside the price of gold, by $0.63, or 1.8%, to $33.60 per ounce. Other precious finished mixed, as platinum futures rose 0.6% to $1,695.70 per ounce while palladium fell 0.8% to $704.25 per ounce. Among cyclical commodities, copper futures dipped 0.4% to $3.84 per pound and crude oil dropped 0.9% to $106.39 per barrel.

Gold shares declined in concert with the gold price, as the Market Vectors Gold Miners ETF (GDX) slipped 1.6% to $52.37 per share. In doing so, the GDX closed at its lowest level since January 24th and cut its year-to-date gain to just 1.8%. Notable gold producers moving lower on Monday included Kinross Gold (KGC) and Newmont Mining (NEM). KGC fell 1.4% to $10.91 per share and NEM sunk 2.0% to $55.75 per share.

Yesterday’s gold price sell-off followed data showing a significant drop in speculative activity in the gold market. The most recent Commitment of Traders (COT) report from the Commodity Futures Trading Commission (CFTC) – for the week ended March 6, 2012 – consisted of the largest decline in net speculative positions since August 2008.

Edel Tully, a precious metals analyst with UBS, wrote in a note to clients that the move lower in gold “was entirely on the back of longs getting out, reversing all of the gains since the Jan. 25 FOMC meeting.”

Tully – the most accurate gold price predictor in the 2011 London Bullion Market Association Forecast – added “That prices have been more resilient, falling only 7% despite a 23% decline in positioning, is encouraging, considering that the most recent selloff of similar magnitude – the 21% contraction in the COMEX gold book back in September – resulted in a considerably larger 20% drop in the price of gold. Nevertheless, we maintain some degree of caution at this stage.”

In contrast to Tully, noted hedge fund manager Kyle Bass offered a more constructive outlook for the price of gold on Monday. In a CNBC interview, he stated that “I think that the pattern is set…that we are going to continue to monetize fiscal deficits by expanding central bank balance sheets. Call it what you want. Call it LTRO, call it quantitative easing, or any acronym that the powers that be want to call it. I call it money creation out of thin air, and therefore, gold has got a lot further to go.”

Bass – who runs Hayman Capital Management and has been a long-time gold bull – was also asked about other topics related to the yellow metal. On the subject of gold being taxed in the U.S. as a collectible at 28%, he contended that “I think it should be taxed as any other asset that you own, with the same duration of holding as any asset you own.”

As for a return to a gold standard, Bass responded “I don’t think so. I’m not an advocate of such. Tying our enormous economy to one metal coming out of the ground would probably be a bad idea. But tying it to a basket of goods and services might be a good idea…. Because what we need is to be able to limit the amount of capital coming into the system.”

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