Europe has officially crossed the threshold into deflation this week, on top of that, economists and Eurozone officials are concerned with a Greek “anti-austerity” political party continuing to grow in popularity. If they are able to come to power in Greece, they have said they would make a push to exit the EU and drop the Euro, which would have very serious consequences for the entire Eurozone. As of right now, there is a set of elections in Greece that is due to take place January 25. This will be a very key date for the Euro and the EU. Additionally, with worldwide continued deflationary fears, some economists see the potential for more stimulus, despite the already prevalent stimulus programs around the world.
US dollar strengthens as oil prices plunge
Oil continues to decline to multiyear lows, US dollar is one of the top performing world currencies, and the US Federal Reserve is poised to raise interest rates at some point in 2015. While the Fed continues to be “patient” and not rushing to lift rates, economic strength around the world looks like it is developing cracks. According to Sterne Agee, it may be time for some gold in your portfolio to help ward off some of the worldwide economic distress.
What can past market crashes teach us about the current one?
Gold demand in India
India is the largest consumer of gold in the world. Due to the fall in oil, India is seeing excess funds in their import budget. In fact, there is so much extra that the country just recently lifted parts of their gold import restrictions, in order to purchase more gold assets. In China, on the Shanghai Gold Exchange, the precious metal has staged a rally so far in ’15 and currently trades at a premium of $3.50-4.50 over the global spot price. In the US, the United States Mint has released sales data that shows it has sold 45,000 ounces of gold coins since the start of 2015, compared to 18,000 ounces for the entire month of December 2014. In just over a week into the New Year, the US Mint has already over doubled sales of gold coins from the previous entire month, which is amazing and certainly shows that there is fear in the markets.
Analysts at Sterne Agee believe that gold miner equities will outperform, in addition to spot gold prices. The analysts see a more “sustainable business model” due to cost cutting and decent capital reserves. Sterne Agee has “buy” ratings on Agnico Eagle Mines Ltd, Coeur Mining, Gold Resource, and Newmont Mining.
The bottom line here is that, despite all the calls for continued bull market run, the underlying economic data is shaky and will someday become a full blown crisis, as most central banks have very few options left to stimulate (other than increase bond buying). Gold thrives on fear and uncertainty. After taking a breather the past two years, gold could be poised to restart its bullish run.