Tags: Yardeni | gold | shutdown | Fed

Yardeni: Gold Is Destined to Move Sideways at Best

Friday, 04 Oct 2013 08:15 AM

By John Morgan

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The prognosis for gold is weak, and since it has vacillated even in the face of the government shutdown crisis and endless Federal Reserve quantitative easing (QE) stimulus — both of which might be expected to send the precious metal soaring — things are unlikely to get better soon, according to economist Ed Yardeni, president of Yardeni Research.

On his blog, Yardeni said gold is also a marker for other commodities, including crude oil, meaning they also likely do not have much near-term upside.

"It has been a bad year for gold," Yardeni wrote. "The precious metal is less precious" after falling close to $400 per ounce since the start of 2013 and remains way off its record high of $1,895 from Sept. 6, 2011.

Editor's Note:
Get Tom Luongo's Gold Stock Adviser — Click Here Now!

Gold did not get a lasting upward nudge after the Fed decided unexpectedly not to taper its massive $85 billion bond buying last month, and has not gained much momentum this week "despite the partial shutdown of the U.S. government and the ongoing fiasco of fiscal recklessness in Washington," Yardeni noted.

"I view the price of gold as an indicator of the underlying trend in the CRB raw industrials spot price index. That index has been flat-lining since the spring after falling at the start of the year," he wrote.

"We continue to believe that the path of least resistance for industrial commodity prices is sideways. The action in the gold pits suggests that it certainly isn't likely to be higher."

Gold's allure as a safe haven usually grows with economic and geopolitical tensions, but the government shutdown has so far not create a real upward price move.

"If the government shuts down and people start to save money, why should it be supportive for gold?" Dominic Schnider, an analyst at UBS Wealth Management in Singapore, told Reuters.

"You don't want to own gold because the [shutdown] could negatively affect the economy and purchasing power is being impaired."

In his financial blog, Scott Grannis, former chief economist at Western Asset Management, a Pasadena, Calif.-based global asset manager, said gold's current price behavior confirms his earlier forecast that the gold rally is defunct and its price will "realign with commodity prices at a much lower price."

"When gold prices reached [record levels] two years ago, I think it was because the market was betting that all sorts of things would go wrong: the Fed's QE would create hyperinflation, the dollar was going to crash, and/or debt defaults in the Eurozone and possibly in the U.S. would lead to another financial Armageddon. Since then, it's been a case of the 'dog that didn't bark,'" Grannis wrote.

"Perhaps the gold market is beginning to understand that the sound and fury coming out of Washington could be the beginning of the end of Big Government," Grannis said.

Editor's Note: Get Tom Luongo's Gold Stock Adviser — Click Here Now!

Related Stories:

David McAlvany: Gold Is the Most Valuable Form of Cash

Gold Stock Adviser's Luongo on Gold: Buy the Metal, Not the Stocks

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