Daily Gains Letter

deflation


Losing Faith in Gold? Read This Before You Sell

By for Daily Gains Letter | Nov 25, 2013

Faith in Gold“The sky is falling, sell;” “It’s useless, run away;” “There’s going to be deflation, so it won’t serve any purpose to your portfolio”—these are a few of the ways gold bullion is being described these days. The yellow metal is facing scrutiny, and those looking for it are gasping for air.

Looking at all this negativity, should you lose trust in gold and sell, like the mainstream says?

The scrutiny against gold bullion is significant, but I remain bullish on the metal in the long run. As it stands, I don’t see demand declining, and as the prices remain suppressed, I expect the supply to decrease.

When gold bullion prices slid lower, we started to hear that the buyers would run for the exits, but we still don’t see that happening; as a matter of fact, more consumers are jumping in to buy the precious metal.

The nations that are known as the biggest consumers of gold bullion are still buying. According to the World Gold Council, in the third quarter of 2013, gold bullion jewelry demand in China was 164 tonnes, an increase of 29% from the same period in 2012. In India, the demand for gold bullion remains robust; for the first nine months of this year, the demand for gold bullion was higher than the previous year by 19%, despite the government and central bank working together to curb the demand. (Source: “Gold continues its journey from West to East as buoyant consumer markets balance investment outflows,” World Gold Council web site, November 14, 2013.)

“Consistent with the first two quarters of 2013, the global gold market … Read More


How to Profit from Fed’s Easy Money Mistake

By for Daily Gains Letter | Nov 19, 2013

Profit from Fed’s Easy MoneyThe Federal Reserve has been very accommodative. Its goals are very simple: it wants economic growth in the U.S. economy. As a result, the Federal Reserve is taking extraordinary measures, printing $85.0 billion a month and using it to buy U.S. bonds and mortgage-backed securities (MBS). The hope is that the money will go to the banks, which will lend it to consumers who then spend it, leading to economic growth.

Sadly, the problems continue to persist in the U.S. economy, leaving economic growth still far from sight. The techniques used by the Federal Reserve aren’t working: the unemployment rate continues to be staggeringly high, troubling trends have formed, and the inflation continues to be low—threats of deflation loom.

Given all this, one would assume there might be something else that the Federal Reserve can do. Unfortunately, instead of using different measures to fight the problems in the U.S. economy, the Federal Reserve is planning to keep on doing what it has been doing for years now. I believe the techniques used by the Fed will continue on for some time.

Here’s my reasoning: in a testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs, the newly nominated chairman of the Federal Reserve, Janet Yellen, said, “We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession. Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been … Read More


Changes in This Country’s Economy Have Created Opportunities

By for Daily Gains Letter | Jul 16, 2013

Economic GrowthSwitzerland is at a crossroads. On one hand, the country, long celebrated for its economic growth, saw its exports

hit hard in May. That’s not a good long-term indicator for a country whose exports account for 50% of the gross domestic product (GDP).

On the other hand, Switzerland recently signed a free trade deal with China. For investors looking to diversify their portfolio, all the pieces are in place for an excellent trading opportunity. (Source: “Switzerland Exports,” TradingEconomics.com, last accessed July 12, 2013.)

When most people think of Switzerland, they think of banking.

That tradition came from Switzerland’s political neutrality (it avoided both World Wars), which has translated into long-term political stability, strong monetary policies, and economic growth, making it an attractive safe haven for investors. In fact, it is estimated that almost 30% of all funds held outside their country of origin are kept in Switzerland.

More recently, Switzerland’s political neutrality meant that it has been able to enjoy economic growth while the rest of Europe was embroiled in economic turmoil. Switzerland is not a member of the European Union (EU), and only became a member of the United Nations (UN) in 2002.

As a result, trade is the foundation of Switzerland’s prosperity. Switzerland’s economic growth hinges on its main exports, including watches and clocks (TAG Heuer, Hublot, Zenith), medicinal and pharmaceutical products (Novartis, Roche), food processing (Nestle), and electronics and machinery (ABB Ltd., Sika AG).

For years, Switzerland’s economic growth has been helped, in large part, by Germany and the United States, its two largest trade partners. In 2012, Germany accounted for about 25% of Switzerland’s foreign trade. … Read More


How Low Can Gold Prices Actually Go?

By for Daily Gains Letter | Jun 25, 2013

Why Gold Bears May Be Wrong on Their PredictionsGold prices fell into turmoil after the Federal Reserve announced it might be slowing the pace of its quantitative easing. Prices tumbled and broke below the support level, which was formed after gold’s previous decline in mid-April to around $1,350.

Since the beginning of the year, gold prices have been in a continuous decline and have plummeted from trading at about $1,650 an ounce to below $1,300—a drop of more than 21%.

With this slump in gold prices came an increased amount of noise. Some are saying gold has lost its “haven” status, while others are saying we actually may see deflation ahead, so buying gold isn’t the brightest move for investors. Their estimates may vary, but it’s clear that they are extremely bearish on the yellow metal.You can see this decline in the stock chart below:

Gold - Spot Price Chart

Chart courtesy of www.StockCharts.com

With all the negativity around the precious metal, everyone is wondering: how low can gold prices actually go?

It actually turns out that the supply and demand side of gold suggests that the bears might be wrong in their projections.

While the gold prices have taken a hit, the demand remains exuberant. The World Gold Council (WGC) reported that in the first quarter of 2013, 963 tonnes of gold bullion was sold. In that period, central banks bought more than 100 tonnes for seven consecutive quarters, and buyers in India and China, the biggest gold-consuming countries, were resilient and bought even more. (Source: “Global demand for gold Jewellery up 12% in Q1 2013 driven by significant increases in India and China,” World Gold Council web site, May 16, 2013, … Read More


U.S. Next to Witness Long Period of Deflation?

By for Daily Gains Letter | May 23, 2013

U.S. Next to Witness Long Period of DeflationWhile there’s a significant amount of talk among investors about inflation being ahead in the U.S. economy, the indicators are, against all odds, currently showing the complete opposite.

The Consumer Price Index (CPI), the most quoted indicator of inflation, declined 0.4% in April, continuing its slide from the previous month, when it decreased 0.2%. (Source: Bureau of Labor Statistics web site, last accessed May 22, 2013.) So far, from January through April, inflation in the U.S. economy has increased only 0.1%.

Looking at other indicators of inflation—such as the Producer Price Index (PPI), considered to be an early indicator of inflation—these indicators suggest the same and show a steep decline. The PPI registered a decline of 0.7% in April, after declining 0.6% in March. (Source: Ibid.) The index has turned negative from the beginning of the year.

Going by all this, can the U.S. economy go through a period of deflation, when prices decline?

To say the very least, looking at inflation data from the last two months (March and April), it is still too early to say if the U.S. economy will experience a period of deflation—but it shouldn’t be ruled out.

Consider the Japanese economy: it has been experiencing deflation for more than a decade, despite the efforts taken by the Bank of Japan to jumpstart the economy. Similar to what the Federal Reserve is doing now in the U.S., the Bank of Japan has kept interest rates artificially low and has taken more aggressive steps to bring in inflation; however, it continues to fail.

Considering deflation as one of the possible scenarios in the U.S. economy, what … Read More