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James Rickards: Runway For Gold Opens Up On Anticipated Tailwinds - Sprott Thoughts (09/01/2019)

James Rickards: Runway For Gold Opens Up On Anticipated Tailwinds - Sprott Thoughts (09/01/2019)
By Remy Blaire for Sprott Thoughts 8 months ago 9308 Views No comments

January 9, 2019


James Rickards, Author of The Road to Ruin

A New Year is upon us and gold is shining bright. The precious metal is holding onto recent gains after closing out 2018 near a six-month high. Spot gold managed to post its best monthly gain in almost two years in December and outperformed the broader market. Volatility in global equity markets, the outlook for the Federal Reserve and a weakening dollar, pushed gold out of the doldrums for the year.

Gold may have posted its first annual pullback since 2015, but recorded a gain of 7.2% in Q3 2018 and an advance of 4.6% in December. In fact, the precious metal had its best December performance in a decade. Considering that gold hit a 20-month low in August of last year, the pace of recovery is worth noting. Also daily trading volume for the metal was high in terms of OTC transactions rising by 2% YOY.

2019 kicked off with concerns about the slowing global economic growth and the trajectory of the Federal Reserve’s monetary policy. Ongoing uncertainty over U.S.-China trade negotiations, the partial U.S. government shutdown and Brexit, boosted demand for safe havens.

Ahead of the positive U.S. Employment Report for December, gold futures managed to top the $1,300 an ounce mark. Prices retreated below the psychological level in the aftermath of a robust jobs report as Fed Reserve Chairman Jerome Powell emphasized the central bank’s sensitivity to downside risks and expressed his confidence in the U.S. economy. While risk appetite rose amid the rhetorical shift, it may be too soon to breathe a sigh of relief.

YELLOW METAL GOING HIGHER DESPITE HEADWINDS

Jim Rickards joined me at the NASDAQ MarketSite at the end of last year to talk about the outlook for 2019. He expects the headwinds for gold will turn into tailwinds and that the outlook for prices remains positive. Given the slow and gradual recovery for spot gold, Rickards mentioned that he gets asked often about the leisurely pace of the advance.

Interview segment with Jim Rickards taped on December 2018: CLICK HERE.

The fundamentals that are monitored closely in correlation to gold include USD price action, the interest rate outlook and inflation. The Federal Reserve may be nearing the end of its three-year rate hiking cycle sooner rather than later. With potential upside for gold prices, be on the lookout for a possible breakout amid volatile trading conditions.

BULLISH SIGNS FOR GOLD?

As the first full trading week of 2019 got underway data from the People’s Bank of China showed that the nation increased its gold reserves last month for first time since October 2016. While this is a notable move, other countries around the globe added to their gold holdings for the first time in several years. Hungary and Poland added to their gold holdings following similar diversification and repatriation moves by other central banks.

It is no secret that gold is viewed as a safe haven asset that provides protection from USD fluctuations so it should come as no surprise that central bank reserve holdings of gold climbed last year. The official numbers on central bank net purchases of gold showed that the net buying of reserves pushed overall sector activity higher.

According to the latest World Gold Council report, gold-backed ETFs rose in December and posted the third consecutive month of positive flows. European funds propelled the growth with Germany leading with inflows of $2.6 billion. Meanwhile North American funds led the outflows during the first three quarters of the year but reversed course in the fourth quarter and managed to make up most of the losses from 2018.

The WGC’s monthly gold ETF/ETP report also reflected strength of inflows with total gold-backed ETF holdings settling above $100 billion for the first time since 2012. The organization’s data on daily gold trading volume saw an increase of 2% year-on-year, coming in at an average of $100- to $125 billion a day in 2018.

Meanwhile, palladium continues to trek higher and set new record levels in 2019. In our most recent interview, Rickards commented on the “other precious metal,” especially in light of the fact that palladium is at a premium to gold prices. There has been a bright spotlight on palladium as prices surpassed gold amid increased demand for its use in catalytic converters for vehicles.

GETTING READY FOR THE NEXT RECESSION: RISKS ON THE HORIZON

Does a depression sound worse than a recession? Rickards offers an explanation as to why we have been in a depression for over a decade. There are some that may say recession worries are overblown at this point in time, so make sure to listen to Rickards’ account of economic growth and argument for which type of trough in economic activity is most worrisome.

Have you ever paused to consider the best methods of wealth storage and wealth preservation that are not digital? It may be far-fetched to believe that a cyberattack on the major banks could trigger a major financial crisis. Disruptions to financial systems and services or a temporary halt to critical infrastructure are threats that already cost nations over $1 trillion in damage. Perhaps it may be safer to go the non-digital route and diversify in other ways – or at least consider as an alternative.

Cybersecurity programs and war game simulations can help set standards for major institutions and bring awareness to vulnerabilities and response protocols for potential risks.

The road ahead for investing may seem murky enough. Cybersecurity will continue to play a big part in the risk management structure of financial firms but also of institutions across the public and private sector. Preparation and strategy will further inform industry and investors alike. The consequences of a cyberattack can be catastrophic but the digital economy has become a reality for business models that span the globe.

Rickards emphasizes that he has never recommended “sell everything, buy gold.” Instead he says that land, physical gold (in storage) and natural resources are non-digital assets that can be owned as part of an individual’s investment portfolio.




Sprott's Thoughts

Sprott Global Resource Investments Ltd. is a wholly-owned subsidiary of Sprott Inc., a public natural resources investment management firm listed on the Toronto Stock Exchange (Symbol SII). Sprott Money is pleased to bring selected writings from the financial experts at Sprott Global to our readers from their newsletter, Sprott's Thoughts.


The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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