3 Signs that a Perfect Storm is Brewing for Gold as a Safe Haven

Gold may have found its floor. As the yellow metal gained 5.5% last week, a growing number of market watchers – from Deutsche Bank to Merrill Lynch to Citibank – have been calling for gold to fully emerge from its recent correction.

At the same time that gold is looking poised to rebound, the near-term geopolitical outlook for the U.S. and world isn’t as bright, with some potential storm clouds gathering in the coming months. In fact, we see three key signs that a perfect storm is forming for gold and silver – a storm that will further cement the status of physical precious metals as an unparalleled safeguard for your savings.

1. The Fed doubles down on money printing
Despite previously hinting otherwise, this past week Ben Bernanke squashed any thoughts that the Fed may soon end its massive “stimulus” program of Quantitative Easing: “Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy.” It’s just the latest example of Bernanke teasing the markets by putting an end to this madness but instead kicking the can further down the road.

So the Fed will continue to indefinitely flood the U.S. economy with $85 billion EACH MONTH. Which unfortunately makes practically pointless any talk that the economy is actually improving or that the latest stock market rally is due to sound fundamentals; we can’t truly know about either for as long as Bernanke continues to inject this liquidity into the system. Quantitative Easing is going to end at some point. Whether that end comes by choice or by the market’s own inevitable forces… the fallout likely won’t be pretty.

2. Growing unrest in the Middle East
With instability in Egypt and Syria reaching a fever pitch, the high hopes many had for the “Arab Spring” are crumbling. And with so many unpredictable players and elements in the Middle East, it’s not difficult to imagine dozens of scenarios for how the dominoes can ultimately fall.

Already we’re seeing oil prices reaching record highs on the back of fears that the turmoil may further escalate. Could gold’s recent rise be partly due to increased safe haven demand as well? One thing’s for sure: if this situation continues to escalate, we’re going to see a true test of just how much the entire world values gold and silver as protection against geopolitical unrest.

3. Looming debt ceiling talks
It’s coming. Despite every last attempt to push off the inevitable, as the U.S. debt approaches an astounding $17 trillion, talks over the debt ceiling will need to happen… and soon. The sad fact is that it may not matter if an agreement is reached; as we learned in 2011, it was the process of just coming to an agreement (if that’s what you can call an “agreement”) that did a great deal of the harm.

The worst possible (and very realistic) scenario? Come October, at almost the same exact time that this debate is due, so is the debate on the budget (never any more pleasant), as is the Fed’s next meeting (when Bernanke will tease the markets yet again).

Some serious challenges for the U.S. and world are impending, and they’re coming soon. To experience any one of them on their own would usually be enough to send safe haven investors fleeing towards physical gold and silver – but all three at the same time? Might want to start battening down the hatches of your savings portfolio…

If you haven’t protected your savings with at least a little gold and silver, now is the time to get started. Give us a call today, and one of our precious metals specialists can help get you protected.

Precious metals on the move

London Fix PM price at week’s end, and change over previous Friday:

  • Gold: $1,279.75, up 5.5%
  • Silver: $19.66, up 1.8%
  • Platinum: $1,403.00, up 5.7%
  • Palladium: $716.00, up 7.0%

In the news

Gold is now in the sweet spot
“We don’t believe [Ben Bernanke’s] intentions have changed. If the Dollar breakdown continues, it will be a sign that the market believes the Chairman has again lost control over policy. The asset clearly in the best position in such an environment is Gold. After such a notable correction in the past 9 months, the precious metal once again becomes a very attractive global asset if monetary policy in the largest economy of the world spins out of control.” – Mike O’Rourke, JonesTrading (link)

The case for gold? Not a speculative one, but a hedge
“The case for or against gold has not changed all that much since 2010. In October of that year, the price of gold… was on the way up, having just reached $1,300. But the real case for holding it, then as now, was never a speculative one. Rather, gold is a hedge. If you are a high-net-worth investor… it makes perfect sense to hold a small percentage of your assets in gold as a hedge against extreme events.” – Kenneth Rogoff, professor of economics and public policy at Harvard University (link)

Congressman Scott Garrett: “The Fed is failing”
“This is no surprise to us Fed watchers who knew, from day one, when they began their roll-out of QE1… to infinity, that the day when the proverbial punch bowl was going to be taken away, that would be the day when the pressure would be put back onto the Fed to… provide yet another easing.” – Rep. Scott Garrett, New Jersey (link)

Spotlight on Silver

Reduced silver supply to support rebound
“The fundamentals of silver are very strong. We see good industrial demand for silver, and believe in the long term that silver prices will rebound as the fundamental picture becomes clearer.” – Rob Doyle, CFO of Pan American Silver (link)

Chart of the week

Gold is forever. Everything else? Eventually it all goes to zero…
currencies terms of gold

The week ahead

  • Bernanke to testify to Congress re policy on Wednesday and Thursday
  • Several big banks to report second quarter earnings
  • Economic reports include retail sales, business inventories, consumer price index, industrial production, the housing market index, jobless claims, personal income and spending
  • Portugal to cause a stir over terms of the nation’s financial bailout?
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