Tuesday, June 10, 2014

Gold & Silver USD price Break Out is Imminent

Gold has stagnated trading in a flat line now for the last few months in the 1250 to 1325 USD / ounce
price range - more recently trading in the 1250 USD / oz price. 

In early June 2014, a modest earthquake hit the markets with the European Central Bank (ECB) deciding to  lower two key interest rates. The ECB refinancing rate goes to plus 0.15% down from 0.25%. However, it is the ECB's decision to move the interest rate for banks depositing monies with the ECB to negative 0.1 percent, this policy move is the initial fuel to start a major fire within the global gold market.

That is, banks now pay the ECB to hold their money instead of receiving interest. The central bank is implementing this negative rate to try and encourage European banks to lend the money to help foster economic growth within the currency union.

With current inflation in the Eurozone at 0.5%, well below the 2% target, the central bank is now pulling several levers to stimulate the velocity of money and encourage domestic inflation within the common currency zone.

Also, keep your eye on the U.S. Federal reserve to perhaps surprise the markets in July 2014 with a pause on tapering. This too would add much bullish sentiment to USD gold price going forward with silver following the trajectory of gold but likely at a faster velocity of USD price rise then gold.

In our view, we believe that gold is now very close to a major turn back north in price towards 1400 to 1500 USD / oz by year-end 2014. By year 2016 - 2017, inflation will return to modest levels within the United States and Europe, thus we expect gold prices to be over 1700 USD.

Finally, gold priced in other currencies such as Canadian will account for CAD dollar depreciation, expect much higher CAD dollar gold prices going forward. Over the last year for example, CAD gold is only down 3.4% whilst USD price gold is down 9.73%. Our research suggests a medium term floor price for the CAD further depreciating to the 83 US cent level. If the oil market makes a major turn south in price, this forecast could be further revised downward with a new floor in the mid 70 USD cent range for each CAD.

A quick general snapshot on currency valuations shows heightened risk for the Swiss franc (CHF) with the CHF maintaining upwards of a 55% purchasing power overvaluation to USD. A good time to buy gold in CHF is right now. Conversely, the Turkish lira is upwards of 50% undervalued to the USD, a good time to accumulate and hold lira currency in our view.

For further research on currencies, please visit us at: http://www.bankintroductions.com

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