Gold And Silver Surge Over 3% And 4% Respectively On Iraq, The Fed and Commodities Ponzi
Gold has surged over $41 and silver over 70 cents to over $1,314 and $20.46 per ounce or 3% and 4.2% respectively.
Gold and silver have surged and added to overnight gains as geopolitical risk raised its ugly head once again. The situaiton in Iraq has deteriorated leading to deepening tensions in the region and oil prices steadily marching higher. There are also concerns that the Chinese commodities collateral fraud could lead to a scramble for physical metals - both base and precious.
Stocks and the dollar have weakened after the U.S. Federal Reserve confirmed ultra loose monetary policies are set to continue due to slowing economic growth and despite inflation pressures building. The Fed cut its U.S. growth forecast for 2014 from 2.9% to a range of between 2.1% and 2.3%.
Oil prices rose again today and remain near multi month highs on concerns of supply disruption. The violence gripping energy producer Iraq continued to create supply fears, with global crude pushing higher after hitting a nine-month high. Army troops and Islamic militants battled for control of Iraq's largest oil refinery, which by late Wednesday remained in government hands.
However, this morning AP reports that ISIS militants are flying their black flag over the Iraqi Baiji refinery. Tensions over Iraq and Ukraine are attracting some safe haven bids for gold.
Platinum and palladium rose as new hurdles emerged in settling South Africa's industrial unrest and doubts remain about the viability of Russian supplies.
The smart money continues to dollar cost average into gold and is getting into position. The half year and full year weakness we saw in 2013 may be seen again and create a buying opportunity for bullion buyers.
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Faber Advises 25% Allocation To Gold And Says “Media Doesn't Like Gold"
Dr Marc Faber told CNBC in an interview yesterday that the “media does not like gold.” Dr Faber, the author of the Gloom Boom Doom Report sought to explain gold’s poor price action recently and suggested it is due to poor sentiment and the fact that “the media doesn't like gold."
“Investors should have some exposure to gold" and Dr Faber has been adding recently as gold (and gold stocks) are so much cheaper than “over-inflated stocks”.
"I have an exposure of approximately 25%, and just recently when it dropped, I bought some more," he said. "Nothing is particularly cheap, [but] gold is relatively cheap compared to equities at the present time."
Faber holds around 25% of his assets in gold because he believes we have a “colossal asset inflation” and eventually the monetary policies of central banks will lead to a further loss of purchasing power in the value of paper money.
When asked by the CNBC anchor why investors are shunning gold, Faber suggested one reason is "because the media doesn't like gold, nobody at CNBC owns gold. Nobody at Bloomberg owns gold. Gold is being constantly talked down by the media, and Fed officials, and economists, who also don't own any gold. They're all stocked up in equities."
This is an interesting point as we know from conversations with financial journalists in London that many of them are actually banned from owning gold by their employers as it would create a “conflict of interest.” Bizarrely, at the same time they are allowed to own other asset classes such as stocks and bonds and can have cash deposit accounts.
Therefore, there is the possibility that there is a cognitive bias towards certain asset classes and against other asset classes amongst journalists. This is unfair to gold and indeed to the journalists in question as it means that they cannot own a properly diversified portfolio.
It was funny that in the CNBC coverage of the interview, the producer confirmed Dr Faber’s assertion and disclosed at the bottom of the piece that he does not own any gold:
“Disclosure: The writer of this article indeed does not own any gold.
—By CNBC's Alex Rosenberg”
Dr Faber, pointed out the bias against gold in the very language used to describe gold proponents. "When people talk about people who are optimistic about gold, they call them 'gold bugs.' A bug is an insect. I don't call equity bulls 'cockroaches.' Do you understand? There is already a negative connotation with the expression of 'gold bug.'"
The somewhat pejorative language used regarding those who advocate owning gold is another very interesting point and one we have pointed out before. People who are bullish on stocks or the dollar are not called stock ‘bug’s or paper ‘bugs’ rather they are stock bulls and dollar bulls.
Faber recently told GoldCore in a webinar how he will “never sell his gold”, he buys “more every month” and believes storing gold in Singapore “is safest”.
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