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Discussion Topics -- June 19, 2014
Gold up $40, why?
Rising oil prices
Gold's safe haven role returns

Someone lit a fire in the gold market yesterday (Thursday, June 19th), as the yellow metal rose $40+ in U.S. trading. Theories abound as to what exactly caused such a sharp rise in gold, but our best guess is it was likely a confluence of several factors. One, as ZeroHedge first reported, a Chinese trading company is being investigated for securing loans from foreign banks with collateral they did not own and/or pledging the same collateral multiple times. The concern is heightened by the fact that if one trading company was doing it, perhaps many were. Where there's smoke there's fire.What ZeroHedge is suggesting, is that part of unwinding these dubious Chinese Commodity Finance Deals (CCFDs) would likely include buying in short hedges in the paper gold market, thereby causing the price to rise. Second, Yellen backtracked on her statements regarding the timeline for raising interest rates, inferring economic growth may not be as robust as previously thought and forestalling a rising rate environment that tends to work against gold. And third, the spike in tensions in the Middle East has begun to show in oil prices, and the typically positive correlation between gold and oil prices may be reasserting itself.

Rising oil prices threaten to reverse the fledgeling recoveries in Europe, Japan and the United States. Though energy isn't included in the inflation figures here in the United States, its impact moves well past the cost of gasoline. Energy costs are factored into the price of nearly every good and service we pay for, and sustained rises will ripple through nearly every part of our daily lives. It will be interesting to see if gold plays catch up with oil in terms of price, as the historic correlation has been somewhat absent as of late.

The recent spike in geo-political tension is notable as well, with the Ukraine/Russia conflict still unresolved, the escalation of sectarian violence in the Middle East, and continued resource based conflict in the Far East. All the while, gold's role as a safe haven asset is being renewed. This is notable because, as gold declined last year, it was relegated to a 'risk asset' and, due to its volatility, it was hard to deny such claims. However, after a year of consolidating in price and building its base, perhaps it is time for the sun to shine again on gold as the only currency that can't be printed, destroyed or debased. 18:31 Minutes, with Jonathan Kosares, Peter Grant and George Cooper.

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Iraq oil production



Coins & bullion since 1973

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