Gold rallies as housing struggles

A slowdown in the housing market, driven by a rise in mortgage rates, is pushing up precious metals on renewed cheap money hopes.

By Anthony Mirhaydari Aug 23, 2013 1:43PM

 copyright Stockbyte, SuperStockAddictions are hard to break. It's so easy to fall back into old habits. Find a new supply. Ease the pain.

 

That's exactly what's happening with Wall Street, which is hooked on the Federal Reserve's cheap money morphine. Investors are looking for any reason to believe the $85 billion-a-month bond purchase program will continue unimpeded, despite signs that a "taper" of around $10 or $15 billion will happen next month. This after new home sales came in lower than expected on Friday, driven clearly by a rise in mortgage rates from sub-3.5% a few months ago to nearly 4.5% now.

 

Hopes of more money printing, to stem the slide in housing, is lifting Fed-sensitive assets like Treasury bonds and gold in a big way.

 

New home sales plunged to a 394,000 annual rate in July vs. the consensus estimate for 487,000 and the prior month's 497,000 result. As a result, supply has risen to 5.2 months of sales from 4.3 months in June, easing the tightness in the market and taking some pressure off of prices. Indeed, the median selling price fell to its lowest level since January.

 

 

Gold and silver surged on the report, with silver up nearly 3% as it nears the breakdown gap created back in April. The metal is up nearly 30% from its June low.

 

 

Because of my expectations of both higher inflation and a Fed that will keep monetary policy too easy for too long (either by tapering more slowly or by keeping short-term rates lower for longer) in the context of a resurgence in global manufacturing activity, I think the move in silver and gold will continue.

 

 

In my Edge Letter Sample Portfolio I'm playing the move with the VelocityShares 3x Silver (USLV) -- up nearly 40% since I added it on August 12 -- and Lake Shore Gold (LSG) -- up nearly 30%.

 

I'm expanding my exposure with the addition of Canadian gold miner Claude Resources (CGR), a high-risk/high-return trade.

 

 

Disclosure: Anthony has recommended USLV, LSG, and CGR to his clients.

 

Check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​om​​​​​​​​​​​​​​​​​​​​ and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.


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68Comments
Aug 23, 2013 2:48PM
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it should read u.s. consumer struggles as free trade continues to drive labor rates lower. The nasty secret not being told is that the rich are buying our homes as an investment.A huge percentage of homes being bought now are being paid cash for. More evidence free trade is a disaster for the middle class American. Fortunately the rich have paid enough in bribes that our government will turn a blind eye to their treachery
Aug 23, 2013 2:42PM
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2% GDP growth, year over year will not match what the value will be.

 

10% GDP China? Can not be sustained.

 

85 billion a month?

 

priceless. 

Aug 23, 2013 2:57PM
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Asset and some commodity prices got way ahead of the economy in the 2000s. Some real estate and stocks were priced as if it were the year 2070. Well when prices collapsed, the fed did everything it could to keep those prices high and higher, mostly to save their very wealthy friends from extreme losses. But price fixing by the fed will never work. Prices must be freed and allowed to normalize to what the real market will allow based on what people really earn and can afford. Then artificial low interest rates and QE aren't needed. A report I read today said, family income is 7% below 2000 levels. So why shouldn't asset, gas, health, and food prices be 7% below 2000 levels too? That's where the real economy is even if the government won't admit it.

Aug 23, 2013 2:17PM
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The Great Recession was the best thing to ever happen to me, financially.  I was able to pour money into retirement accounts while the stock market was in the tank and I bought my first home with a 2.75% 15-year fixed. 
Aug 23, 2013 2:52PM
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Yes  GOLD IS UP $100.00 PER OZ OVER THE LAST 2 WEEKS

I'LL TAKE IT        THX
Aug 23, 2013 3:26PM
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Partially correct. The 30 yr mortgage is almost 5% and even shorter term loans have jumped 1%.  But it's more about how people feel about all the world's fiat currencies not just the USD.  The central banks have all printed trillions of paper trying to prop up their banking buddies and lower government debt payments with future deflated monies. It's a game that is rallying equities and real estate but leaves common people little places to store their wealth with risk to deflation or inflation.  That's where gold, silver and even copper come in play and the miners of precious metals.
Aug 23, 2013 3:23PM
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85 billion a month, 45 to treasuries 40 to MBS.  Why on earth is a little more than half QEIII feeding into the treasury market?  Yields are spiking and from what?  The "good" data isn't showing enough to support a the move in 10 yrs from 1.62 in May  to now almost 2.9?   All the bond manipulation has done is to make corporations lean down sell off and hope for larger yields in the future, (a.k.a. not hire!) 

Now if the Fed bought more MBS instead of bonds, it would drive the mortgage rate back down and do what this @&*#ing policy was intended to.  If you are going to manipulate the markets at least do it where it has the most impact. Listen to  Arvind Krishnamurthy of Northwestern and Annette Vissing-Jorgensen of Berkeley.
Aug 23, 2013 2:20PM
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Gold rallies? It's grossly overpriced and too many rubes are in it. Housing needs to flush bankers out of it and restore REAL lending. Stocks are so over-controlled right now. Best to buy some Mason jars and a shovel.
Aug 23, 2013 3:08PM
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AN END OF AGE PORTFOLIO, GOLD, SILVER, DIVIDEND PAYING UTILITY STOCKS, MLP"S, A WATER STOCK AND FLIPPING A COLLECTIBLE THAT YOU UNDERSTAND ON E-BAY. UTILITY STOCKS BECAUSE PEOPLE HAVE TO PAY THEIR UTILITIES NO MATTER WHAT, GOLD WILL NEVER GO BELOW $1,200- $1,250.00 AN OUNCE BECAUSE IT COST $1,250.00 AN OUNCE TO GET IT OUT OF THE GROUND AND THEREFORE DEMAND WILL INCREASE WHEN NEAR OR BELOW THIS PRICE, THE SAME FOR SILVER, WHICH IS USED IN EVERYTHING SUCH AS SMARTPHONES AND WATER THE MOST COMMODITY BY FAR.
Aug 23, 2013 4:21PM
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Yes, the Fed will taper.  By how much is uncertain but $10 - 15 billion per month is likely.

 

The Fed needs to conserve its monetary ammunition for a much worse torrential downpour.

 

Oh, looky there, the Dow is above 15,000.  Bulls, take a picture of this, it will last longer. 

Aug 23, 2013 4:05PM
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this is the guy who said to get out of stocks in late winter / early spring right before a huge rally.  he said to move into cash.

Aug 23, 2013 5:40PM
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"A slowdown in the housing market, driven by a rise in mortgage rates, is pushing up precious metals on renewed cheap money hopes. "- Mirhaydari

 

    Really?  I would attribute the rise in the price in gold and silver to the collapse of currency values in Asia- in particular the dramatic collapse of the Indian Rupee.   See the following articles:

 

Weak Indian rupee fuels gold, silver prices

 

Both gold and silver prices rebounded at the domestic bullion market today amid weak Indian rupee against US dollar and emergence of fresh demand from stockists as well as investment buying.

Silver also recovered smartly owing to aggressive speculative buying, coupled with strong industrial off-take.

Brisk low-level buying and sliding rupee supported the price trend in the yellow metal. The Indian currency today hit a historic low of 58.16 against the greenback.

Standard gold of 99.5 per cent purity shot up by Rs 230 to finish at Rs 27,760 per 10 gm from last Saturday's closing level of Rs 27,530.

Pure gold of 99.9 per cent purity rose by Rs 215 to end at Rs 27,890 per 10 gm from Rs 27,675.

Silver ready (.999 fineness) jumped by Rs 490 to close at Rs 44,690 per kg from previous closing level of Rs 44,200.

On the global front, gold eased in early trade, extending losses after posting its biggest one-day drop in a month on Friday due to stronger-than-forecast US payrolls data.

Spot gold was down at USD 1,379.61 an ounce in early European trade while silver was down at USD 21.57 an ounce.

 

  and this article from from FXPRO:

 

The Indian rupee’s dramatic collapse

 


At a time when the global investment community is completely transfixed by Europe’s debt crisis and the potentially adverse consequences for the single currency, what has largely escaped attention up until now is the increasing pressure on Asia’s major currencies. Particularly noteworthy is the continuing collapse of the Indian rupee, which overnight fell further to a new record low against the dollar. Since the end of July, the rupee has lost more than 20%; since last Monday, the rupee is down nearly 4%.

It was not meant to be like this. India is one of the BRIC countries with massive growth potential. Some had earmarked India as offering greater risk/reward than China. However, so far this year, any dollar-based offshore investor has lost 35% on Indian equities. So, what has gone wrong?

India’s affliction is shared by many of its Asian neighbours right now. Highly leveraged to global growth, foreign investors have been fleeing high-beta economies like India. Concurrently, domestic conditions have also taken a dramatic turn for the worse. In the year ended October, industrial production fell by 5.1%, almost matching the nadir reached in early 2009. The government’s fiscal position is deteriorating rapidly with the slowing economy weighing heavily on tax revenues. High oil prices are also wreaking havoc on the trade side – October’s trade deficit of almost USD 20bln was the highest for 17 years.

Although the rupee is certainly the weakest of the major Asian currencies, it is not alone. China’s policy officials are engaged in a massive arm-wrestle with foreign investors - the latter have been attempting to get capital out of the country consistently over recent weeks, with the yuan hitting the daily permitted low on each of the past ten trading sessions. The Korean won is also under enormous pressure, down 10% since the end of July. With most of Europe burning, and Asia quite dependent on European capital, it is little wonder that Asia’s heavyweights are suffering.

 

    It's odd that no one on MSN money is even mentioning this collapse and it's fairly obvious connection to the rise in gold and silver prices.

Aug 23, 2013 5:24PM
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Hey Dennis Duffy

 

But a little gold and silver don't hurt

Aug 23, 2013 3:51PM
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Denny...He doesn't know, and NEVER WILL..
Aug 23, 2013 6:07PM
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I'm not so sure gold is "on sale" but I just traded healthcare for gold miners. They are so far down that if they drop anymore they might just stop mining. I don't think that will happen. Go gold and good luck Charlie Manual, one of the good guys.
Aug 23, 2013 5:05PM
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Anthony, give us your best guess. Dow 16,000 or 10,000 by end of September?
Aug 23, 2013 3:48PM
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thre are better  buys in gold mines like bvn
Aug 26, 2013 8:15AM
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Although this Article will be relegated to archived pages in the next hour or two...

 

Many are now talking about a "breakout" in Gold and moving into "bull territory."

 

Going over 1400 and through 1416 as an indicator...

Gold did touch 1406 over the weekend or last night in early trades in Asia, I believe...?

I'm sure we will see more writings, this week and all the reasons why..

From this week and last...Stay tuned.

 

Aug 24, 2013 2:52PM
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I am suprised the purue chicken legs now sell for 99 cents/lb after selling at $1.19 for 9 months. 40 years ago chicken sold for 79 cents a lb. When I see prices stay at $2 lb i will load up on au.
Aug 23, 2013 3:50PM
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Good job Dennis..Some have done real well, during the Recession and Recovery...Others, who knows???

The 'secret" was never to run...

But walk slowly, taking advantage of everything available.

 

The rest pretty much sit around and CARP, all day long; What a waste of life.

 

A goldbug here, a goldbug there....Should be Goldbugs everywhere.

 

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