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Global Gold Demand Fell 7.0% in 2017, May Rise in 2018 Lombardi Letter 2018-02-07 11:58:18 gold price 2018 forecast gold 2018 outlook nunes memo nunes memo black swan star stuff world gold council bitcoin janet yellen Jerome powell gold prices stock market correction Investors have stayed away from gold in 2017 as interest rates remained low and stocks were on the rise. But there are new risks in 2018 that could crash the markets. Gold is the only outlet left for those looking to make a flight to safety. Analysis and Predictions 2018,Gold,News https://www.lombardiletter.com/wp-content/uploads/2017/05/iStock-521616882-150x150.jpg

Global Gold Demand Fell 7.0% in 2017, May Rise in 2018

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Gold Price 2018 Forecast

It may be time, for those who haven’t done so already, to consider “safety” again. It’s time to consider gold.

It may sound boring but there’s a reason gold has lasted this long. Still, many have forgotten the value of gold; in 2017, the World Gold Council (WGC) said that gold demand was at its lowest in eight years. (Source: “Gold demand slid to eight-year low in 2017 -WGC, CNBC,” CNBC, February 6, 2018.)

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It’s unclear how long the market will remain in “shock” mode. Investors appear to have come to terms with the fact that interest rates are about to increase to offset potential inflation.

The world lost its appetite for gold in 2017. The WGC said that demand dropped by as much as seven percent to 4,071.7 tonnes in its demand trends report. Much of the blame goes to smaller inflows into bullion-backed exchange traded funds. Yet it’s also true that gold prices increased in 2017 as the U.S. dollar dropped—given the Federal Reserve’s soft interest policy—but not everyone jumped. The stock market remained too appealing; there were these magical new “investments” called cryptocurrencies, which seemed like such a foolproof and innovative way to make money…

Gold Comes from the Stars and It’s as Rare on Earth as in the Universe

In other words, gold wasn’t cool. But nobody said it was a bad or risky proposition. Gold itself is a material that exists in much of the known universe. Iron and other metals come from stars—their cores. But gold is as rare on earth as it is in the universe because it occurs after the collision of two neutron stars—the ultra-dense nuclei of two stars that have exploded. (Source: “Earth’s Gold Came from Colliding Dead Stars,” Harvard-Smithsonian Center for Astrophysics, July 17, 2013.)

The famous astrophysicist and PBS personality, Carl Sagan, used to say that “we are made of star stuff.” Gold is made of rarer star stuff. It’s one of the few things in the universe, not just earth, which could establish the basis of a “currency” if and when space exploration brings humans to form space colonies or settle on other planets. Bitcoins, which exist only in cyberspace—and are dependent on the power running—can hardly offer that kind of value guarantee.

Gold 2018 Outlook

There’s also a growing sense that the U.S. Government cannot afford the Trump tax cuts. Debt is rising, and more shutdowns are looming. Meanwhile, in March, Congress will have to approve lifting the debt ceiling again. Surrounding this convolution of fiscal concerns are deepening geopolitical fault lines, which could lead to much worse than a financial crash. There’s little else but gold that can allow investors to surf the rising wave of volatility.

Stock markets around the world continued to crash on the day after “Black Monday” 2018. Wall Street has not recovered from its notable four-percent loss. Yet, it appears to have stopped the equity haemorrhage for the time being as the Dow has gained back a few points. It was a dark day on Wall Street. Had Bitcoin not continued its spectacular deflation to below $7,000, pundits and TV talking heads would have described Wall Street’s performance as a crash. After all, in a matter of two days, the S&P 500 wiped out over a $1.0 trillion in capitalization.

What could be safe now? Index funds became the hot item to hedge against “bubble risk.” But even these popular tools (in 2017) seem to have lost favor. (Source: “People Are Worried About the Stock Market,” Bloomberg, February 6, 2018.) Admittedly, the February 6 crash or correction may not even be as significant as the August 2011 market crash. Nevertheless, it’s a sign.

Before the eruption that wiped out Pompeii, the local inhabitants received many warnings of what would occur on August 24-25 in 79 AD. Investors should not dismiss what the markets are saying; volatility is back. Volatility will have many investors thinking and worrying. And when that happens, mistakes are made; the kind of big aggregate mistakes that cause the big market crashes.

The First in a Series of Corrections in 2018

What happened on February 6 is but the first of a series of market shocks or corrections that make for a bullish gold 2018 outlook. It will take time before the majority of investors—and market analysts, for that matter—adjust to a sudden shift. The interest rate scenario has changed suddenly. Trump appointed the new Fed Chair, Jerome Powell, with a view to perpetuating Janet Yellen’s legacy. Rather, the markets are staring at the very opposite scenario. The higher rates will have everyone running to fill their margin calls and cash in their gains before these turn to losses.

It’s not just a matter of interest rates that is fueling the chaos and uncertainty. A long-awaited “black swan” may have hit the markets. As all black swan events, it takes time and analysis to identify them. But this one is certainly starting to look like one. I’m referring to the Nunes memo.

The Nunes memo, for those who don’t know, is a short memorandum that assistants to Representative Devin Nunes (Republican) wrote, which alleges that the Federal Bureau of Investigation (FBI) used dubious sources to secure a Foreign Intelligence Surveillance Act (FISA) warrant to launch its inquiry into the alleged Russian collusion in the 2016 presidential election. (Source: “Read the disputed memo here,” CNN, February 3, 2018.)

The Nunes Memo, Could It Be a Black Swan?

Perhaps it’s an accident or a coincidence that the markets started to slide when the Nunes memo was published. But, it doesn’t matter. The memo contains news that is highly damaging to U.S. democracy. It implies that future elections will be as problematic or more than the 2016 one, regardless of which party’s candidate wins.

The reason why the markets could bear the almost totality of the weight of what is, after all, a political matter, is that President Trump has touted the Dow Jones’ performance as the highlight of his first year in office. Presidents should not boast about stock market indicators because they can easily backfire. Having taken credit for the Dow hitting 26,000, will Trump now take blame for its sudden fall to 24,000?

If Americans were so gullible to give the preposterous Russian interference (any more than the normal and expected) story as much attention as to have virtually revived the fortunes of the CNN news network, then they will believe all kinds of stories. The Democrats can now blame Trump for the market’s volatility. They will be all over him, should Wall Street go in full correction mode—as it might.

At that point, a major 2008-, 2000-, or 1929-style crash becomes a self-fulfilling possibility if not a probability. What’s going to protect you from this scenario? Bitcoin and other cryptocurrencies have already shown their weakness in spectacular fashion. Only gold and a handful of other similar investments offer any security. Higher risk means better prospects for gold and gold stocks as well.

How high will gold reach? That’s unclear for now. But, so far in 2018, gold prices have already gone past $1,350 per ounce, which is already far better than what Goldman Sachs Group Inc (NYSE:GS) had expected. But the venerable investment bank has shaped its neutral (if not bearish) gold outlook based on assumptions that the economy in 2018 will be stellar. (Source: “2018 GLOBAL ECONOMIC OUTLOOK: AS GOOD AS IT GETS,” Goldman Sachs Group Inc, November 2017.)

That’s the flaw. If interest rates rise, the U.S. economy and the financial markets will face greater risks. That alone exposes the weak foundation upon which the bull market has been built.

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