Buy the gold price dip

Author:
Pat Heller
Publish date:
Nov 18, 2016

The financial news has been strange since it became clear last week that Donald Trump was the surprise winner to become the next U.S. President.

During the early morning hours last Wednesday, as Trump’s electoral vote totals neared the number needed to win the election, the Dow Jones Industrial Average futures indicated a decline of about 4.5 percent in that index. The prices of gold and silver in Asian markets were up about 3 percent. However, by the time U.S. markets opened that day, all three of these were back to around the previous day’s closing levels.

Since then, the Dow Jones Industrial Average has risen to an all-time high close and gold and silver prices dropped significantly. Do these moves indicate good times ahead?

Absolutely not!

Through last Friday, here are the 2016 year-to-date results for selected financial indicators:

Silver +26.0%
Palladium +21.7%
Gold +15.4%
Russell 2000 +12.9%
Dow Jones Industrial Average +8.2%
Standard & Poors 500 +5.9%
Platinun +5.6%
NASDAQ +4.6%
10-Year Treasury Note –5.4%

The 10-Year Treasury Note interest rate was 1.37 percent on July 5. As recently as Sept. 30 it was 1.60 percent. On election day it closed at 1.88 percent. Two days later (it did not trade last Friday in honor of Veterans Day) it had jumped to 2.15 percent.

Looked at another way, this interest rate rose 56.9 percent from four months earlier, or 14.4 percent in the two days since the elections. When the interest rate rises, the cash value of the note declines.

As you can see, the Dow’s gain year to date through last Friday is less than one-third that of silver and just over half of gold’s rise. In other words, the Dow has not been an outstanding investment this year.

Of course, as I have said previously, more than half of all publicly traded stocks worldwide are owned by governments, central banks and sovereign investment funds. This means that many stock prices are artificially propped up with government money (meaning – manipulated) rather than being valuations of merits of their businesses.

As for the multi-month lows in gold and silver prices, I don’t expect them to last long. The decline in the gold price last Friday was prompted by the short-selling of $10 billion’ worth of paper gold, a massive one-time manipulation.

But, there is a reason to anticipate higher gold and silver prices soon. Under Sharia law, Muslims are prohibited from the usual forms of investment in gold and silver. Instead, they pretty much can only use it as a form of cash payment or, for industrial purposes, can only be purchased in transactions involving full immediate payment and delivery of the metals.

Into these severe restrictions, the World Gold Council has been working with the Accounting and Auditing Organization for Islamic Financial Institutions for the past two years to develop Sharia-compliant ways for the world’s 1.4 billion Muslims to invest in gold and silver in ways that other people do.

A final announcement is expected within weeks.

Gold and silver ownership is highly valued by the world’s Muslim population. I look for a tidal wave of possibly hundreds of billions of dollars in new demand for physical precious metals in the next one to two months, prompting higher prices.

So, what are you going to do now to prepare?

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He was also honored by the Numismatic Literary Guild in 2016 for the Best Dealer-Published Magazine/Newspaper and for Best Radio Report. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Some of his radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).

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