Gold gains as Donald
Trump warns of a “big fat bubble” in stocks by Blanchard Coins
| December 21, 2015
Gold continues to surprise
Wall Street with renewed strength just days after the Federal
Reserve raised interest rates for the first time in almost
a decade.
Bullion rose almost 1% Monday, hitting almost
$1,080 and building on a 1.4% move higher Friday. That day
also saw bullion holdings in the biggest gold-linked exchange-traded
fund, the GLD, grow almost 3% to 648.92 metric tons.
Meanwhile, a Bloomberg survey of 28 traders
and analysts found that 17 think gold prices will rise in
2016 and reach a median estimate of $1,200.
“A lot of risks” across globe: U.S. economic
data remain mixed at best, with the Fed’s index of national
economic activity falling to six-month lows. Meanwhile,
the global economy continues to sputter, with the Bank of
England suggesting that it’s in no hurry to follow the Fed
by raising its own benchmark rate.
“What happens in the U.S. doesn’t erase
what’s happening in the rest of the world, where there is
still accommodative monetary policy which should be good
for gold,” Simona Gambarini of Capital Economics told Bloomberg.
“There are a lot of risks out there and so there’s a need
for diversification into gold at a central bank level and
retail level.”
Also boosting gold’s allure are U.S. equities,
which have clearly been struggling in the wake of the Fed’s
rate increase. Republican presidential front-runner Donald
Trump reiterated his warning about the stock market last
week.
Bursting bubble won’t be pretty, Trump says:
“Remember the word bubble? You heard it here first,” he
said. “I don’t want to sound rude, but I hope if it explodes,
it’s going to be now, rather than two months into another
administration. … We could be on a bubble and that bubble
could crash and it’s not going to be a pretty picture. The
market has gone down big league the last couple of weeks.
We could be in a big fat bubble and if that bubble crashes,
it’s a problem.”
And it’s not just high-profile public figures
who see danger in the financial markets. Respected analysts
are weighing in too. Writing Dec. 19, Investment Research
Dynamic blogger Dave Kranzler noted: “The Dow Jones Transports
Index is down over 18% from its peak last November; the
SPDR retail ETF, XRT, is down 15% from mid-July this year;
the iShares Biotech ETF, IBB, is down 18% since its high
close in mid-July — perhaps ironically one day after XRT
closed at its high; AAPL is down 20.3% from its February
23, 2015 all-time high — technically AAPL is now in a bear
market; Dow Jones homebuilder/construction index, DJUSHB,
is down over 10% from its high close (not even close to
all-time high) in August — notwithstanding all the other
fundamental headwinds starting blow at housing with full
force, hiking interest rates will act like a roadside bomb
on the housing market.”
“Very expensive” stock market: No wonder
some high-profile analysts are predicting a flat to down
2016 for U.S. stocks. “I think we’re going to have another
flat year in the stock market,” Wells Capital Management’s
Jim Paulsen told CNBC. “We had a pause this year in the
stock market, but it wasn’t a refreshing pause. We didn’t
do anything constructive. We didn’t bring down valuations,
we didn’t really gut-check investment sentiment. We had
a correction, but it was so brief that you reinforced the
buy-on-the-dip mentality.”
“The Fed is raising rates in a very sluggish,
mediocre, global economy,” added Lindsey Group chief market
analyst Peter Boockvar. “At the same time, asset prices
over the past six years have gotten very expensive. … What
we’ve seen over the past couple of months is just a dress
rehearsal for next year.”
As good as it gets?: Mizuho Securities chief
economist Steven Ricchiuto observed that “what (Fed chief)
Janet Yellen told everyone the other day was that ‘this
is as good as it’s going to get.’ That’s a problem because
‘as good as it’s going to get’ has left us with an overvalued
market,” he said.
And Index Futures Group CEO Jack Bouroudjian
warned that a 20% to 30% correction is possible. “We are
in the final stages of the first leg of a great bull market,
maybe one of the greatest ever,” he said. “The market always
gives you warning signals. It’s best to heed those warnings
and adjust accordingly.”
Adjusting accordingly is simple: Make sure
that your portfolio includes a prudent allocation of gold
and silver bullion as well as rare coins. If stocks correct
sharply in the coming year as the Fed withdraws monetary
stimulus, it makes sense to load up now on precious metals,
which already have fall from all-time highs and tend to
rise when equities fall.