How Obama’s failure to avoid Sequestration and the Fed’s Bloated Balance Sheet will ensure another Banner Year for Gold…
“To be successful in the market, 99% of the people have to think you’re wrong.” – Jeb Handwerger, World Renowned Stock Analyst
Financial talking heads are at it again.
Banks and analysts alike are warning the world that gold’s 12-year bullrun is losing steam.
From Goldman Sachs to Credit Suisse, there seems to be a growing consensus that the yellow metal has peaked.
They feel that the “fear trade” which fueled the sharp rise over the past few years following the recession has finally fatigued investors.
With improved US economic data, these so-called experts are no longer seeing gold as a safe-haven asset.
A quick peek at gold’s recent performance (or lack thereof) shows that the herd is as obedient as ever.
My opinion? Keep the talking heads talking.
They’re only going to help create a bigger profit-making opportunity for those who aren’t buying into that nonsense.
Sure there’s many who believe that the economy is indeed getting better, which is proving to be bearish for gold.
But the reality is, there are two significant headwinds which easily negates any of the economic improvements and will keep gold rising.
First of all, the Federal Reserve’s ongoing bond purchases of $85 billion every month rages on, as is their commitment to keep interest rates near zero.
As one media outlet describes it, “The Fed has juiced the economy so much it really does give the illusion that things are getting better.”
But are they really?
The US unemployment rate is still nowhere near the 6 percent level that Fed Chair Ben Bernanke hopes to reach before he’s confident enough to halt the presses and push interest rates back up.
During his recent testimony to the Senate on Tuesday, Bernanke thinks that target won’t be reached for another three years.
In other words, the Fed’s balance sheet will continue to grow for the foreseeable future until the jobless rate shows a significant improvement.
That’s a bullish sign for gold investors as you’ll notice an interesting correlation between bullion prices and the Fed’s ongoing asset purchases.
According to Macquarie Research, for every $300 billion added to the Fed’s balance sheet, there is a $100 per ounce increase in the price of gold.
Based on this ratio, Macquarie estimates that the Fed’s current buying spree will push gold up nearly 16% in 2013.
But that’s not all.
Perhaps an even bigger catalyst for gold is the US government’s inability to avert major budget cuts that took effect on March 1st.
From defense to Medicare to teachers…sequestration paints a grim picture for Americans already struggling to stay on their feet.
The Congressional Budget Office estimated that the sequester would slash 2013’s economic growth from 2 percent to 1.4 percent – the equivalent of 750,000 full-time jobs.
For all of the Federal Reserve’s monetary efforts to curb unemployment and speed up the economic recovery, sequestration was a wrench they were really hoping would not get thrown in.
Unfortunately, political pundits on both sides could not figure out how to avoid the budget guillotine.
And sadly for some, it’s going to be a great deal of pain no amount of positive economic data will be able to soothe.
Gold bugs, on the other hand, couldn’t be happier.
With gold prices where they are, they should be.
for Top Stock Millionaire