Gold's Run Is Far From Over, Argue Analysts

Citing the current persistent environment of low or negative interest rates around the world, some analysts believe the metal can reach as high as $8,000.

Gold has now closed its second consecutive week above its previous all-time high, and considerably so. The $1,911 figure that was so often cited was blazed through as the metal breached the high from 2011 and kept on climbing. Despite calls for a pullback a week prior, gold closed Friday's trading session at $1,976, having traded comfortably in that range throughout the day. With $2,000 looking to be the next capture, analysts and banks have differing opinions as to how high gold can go, although they appear unanimous in terms of the trajectory.

Barry Dawes, executive chairman at Martin Place Securities, sees $3,500 as a target that's reachable in the next two years. Although it might seem lofty, such a climb would not be unprecedented, and Dawes is far from the only issuer of this forecast. Over the past two years, gold has already demonstrated the ability to appreciate by nearly 50%. There is also no shortage of figures in finance who are expecting such movements, with Quadriga Igneo fund manager Diego Parrilla listing $5,000 as a possible level over the next three to five years.

To Dawes, the most impressive part about gold's performance was the ease with which the metal cleared both $1,800 and its previous all-time record, as some had thought the metal might encounter resistance around both levels.

Goldman Sachs, whose analysts have consistently upgraded their gold forecast over the previous months, now sees gold reaching$2,300 over the next 12 months. Previously, they had pegged $2,000 as the level to reach within that timeframe. Goldman cited the persistent environment of low or negative interest rates around the world as a primary reason for their bullish view. Besides this, concerns over the economic recovery moving forward, worries over the dollar's status and a flare-up between the U.S. and China have all acted as powerful tailwinds. The events over the last couple of months seem to have aggravated existing issues between the two nations, with each of them shutting down the other's consulate in a clear display of rapidly-worsening relations.

Juerg Kiener, managing director of Swiss Asia Capital, has a similarly bullish forecast for gold's price based on the technical picture. In a recent interview with CNBC, Kiener delved into the technicals and explained that gold's current price movement looks to be signaling $2,834 in the near future, stating that his long-term expectations are even higher. Kiener also noted that gold has historically bounced back seven to eight times higher from its bottom. In Kiener's example of a $1,050 bottom, gold would eventually go on towards $8,000. Interestingly enough, many pundits have stated that gold had reached a bottom of $1,200 in 2018.

Gold Surges to Top of U.S. Import List

The list of imports into the U.S. was shaken up in May, with gold surging 1,700% from 2019 to now stand at the top import. Here's what's behind the change.

Released last week, the Census Bureau's much-anticipated report lived up to expectations, if only in terms of impact. Perhaps the most shocking number in the report pertained to U.S. trade data, revealing that April's 20.91% year-to-date plunge in trade was followed by a 29.83% plunge in May. There were upsides, too, such as the government's announcement that it posted 4.8 million jobs in June and signs that the domestic trade deficit is shrinking.

Yet whatever the upsides seem to be, Forbes contributor Ken Roberts believes that a closer look into the trade data reveals some major red flags that are likely being overlooked. As Roberts notes, U.S. exports made up for only 36% of overall U.S. trade in May, which might be the lowest export-to-import ratio on record. As Roberts explains, the trade deficit doesn't paint an accurate-enough picture of the economy, and it appears to be masking one of the biggest monthly falls in exports relative to imports ever.

The curiosities related to the trade data don't stop there, though, as an overview of the goods that are being brought in has made international trade look closer to a portfolio reassessment. Normally, computers are the top U.S. import, with passenger vehicles not trailing too far off. In May, however, imports of foreign vehicles fell by a massive 76.88% compared to the same month last year. 

Meanwhile, gold replaced computers as the top U.S. import for the month, with the value of gold imports increasing some 1,700% compared to the previous months of May.

These numbers somewhat tie into both the intense demand for physical gold in recent months and supply shortages in key places. As Switzerland, a top gold processor and exporter, all but closed up shop due to safety precautions, worries over supply escalated. What started as a supply concern among bullion buyers soon translated to questions over whether there would be enough physical gold to cover the metal's derivatives.

But even the well-documented scramble to obtain bullion by virtually every party over the past few months might not have prepared analysts for the import figures. $3.07 tons of gold were brought into the U.S. in March, followed by $7.54 billion in April and $8.77 billion in May. In the past decade, monthly gold imports into the U.S. exceeded $2 billion on just three occasions. Furthermore, the combined bullion imports between March and May eclipsed 2016's annual figure, which was the highest on record.

The Fundamentals for Gold Are As Strong As Ever

Although businesses are reopening, the economy faces multiple headwinds, including massive debt and deficit spending. Here's why that's good for gold.

As businesses slowly reopen after nearly a three-month lockdown, FXEmpire's Arkadiusz Sieron delves into what Americans, along with gold investors, can expect as the climate normalizes. Although dubbed the "Great Unlock", the reopening isn't a single sweeping action performed by the government, just as the lockdown wasn't.

Sieron notes that various state-level entities, as well as citizens themselves, began applying preventive measures before any governmental say-so and, in some cases, extended the measures past the mandatory level. Similarly, the reopening of the economy and the continuation of business will be far from the flip of a switch that some are expecting.

As an example, Sieron points to the restaurant industry, which accounts for around 16 million jobs in the U.S. Even if the government was to allow all establishments to fully open up, many consumers would find themselves with a newfound skittishness in regards to being in a large and dense crowd. 

This is just one example of how the economy could struggle to get back on its feet for some time.

This brings Sieron to the idea of a V-shaped or quick recovery, one which many are hoping for, and yet one that even the Federal Reserve isn't too optimistic on. All of these issues tie closely to gold and how the metal was performing throughout the pandemic.

It's no secret that the metal was the best-performing asset during the onset of the lockdown, as unprecedented uncertainty caused it to soar to seven-year highs. As one might infer from gold inching just below $1,700 last week, traders are likely hoping that the heaps of stimulus and heightened economic optimism will pour over into the coming months. In truth, however, the global economy was far from flourishing heading into the pandemic.

Interestingly enough, the broad asset sell-off in March was the first major hurdle that gold experienced in more than six months, as the metal had been climbing due to numerous sturdy fundamentals. The tables began to turn around mid-2019 as central banks embraced low or negative interest rates, which have all but become the norm as a response to the pandemic. The slicing of benchmark rates brought to the forefront all of gold's strong tailwinds, which many pointed to as the metal's perfect storm.

To be sure, the return to pre-pandemic economy strength will be a gradual process, with plenty of question marks along the way. Yet perhaps the most important takeaway for gold is that the global economy was in a state of contraction prior to any mention of the virus, while the domestic economy was feeling the weight of seemingly unsolvable debt and excessive fiscal spending, along with a host of other issues. Besides potential currency debasement as a result of stimulus measures, the pandemic could also strengthen gold's upwards trajectory by greatly exacerbating the issues of federal and national debt, to speak nothing of the economic sluggishness itself.

UBS Predicts Higher Gold Prices in Near Future

A strategist from the bank explains their bullish outlook, particularly regarding the shift in investor sentiment brought on by the global pandemic.

In a recent interview with CNBC, Joni Teves, a precious metal strategist at UBS Investment Bank, shared the bank's outlook for gold over the coming months, particularly regarding the shift in investor sentiment brought on by the global pandemic.

According to Teves, the slump that gold experienced during March's broad market selloff is long gone, and the metal is primed to continue climbing as it has been doing since mid-2019. Over the past weeks, gold has consistently closed trading sessions around $1,700, with frequent climbs to around the $1,720 level.

Teves and her bank believe that the steady upwards trend will continue, placing $1,790 as the target level for gold in the short-term. Over a slightly longer period, Teves thinks that there is plenty of room for gold to move past $1,800.

Speaking about the reasons for her bullish forecast, Teves explained that investor interest in the metal continues to grow, both among individual investors and funds that were short gold not too long ago. Teves attributes this to nearly unprecedented levels of uncertainty and expectations of low growth that were a significant talking point even before the pandemic hit. Likewise, plummeting interest rates will diminish the appetite for bonds, lowering the amount of choices investors have to hedge their portfolios and diverting attention to gold.

Fat Prophets' resources analyst David Lennox shares the view that central bank actions will continue to greatly benefit gold from various angles. Whereas certain currencies might have been seen as a safe or attractive investment prior to the coronavirus outbreak, the debasement of fiat due to monetary stimulus will rapidly change this notion. Lennox, like many other analysts, also points to the worrisome issue of global debt, one for which there is no solution in sight and will greatly worsen as various governments scramble to mitigate the damage to their economies caused by the coronavirus.

As a side note, the World Gold Council's end of April report revealed that the coronavirus was the biggest driver of gold demand, with investors piling into the metal and funds buying the most gold they have in four years. Prior to the coronavirus, global central banks were spearheading bullion demand and have doubled their yearly purchases between 2018 and 2019. Keeping the WGC's report in mind, it should be interesting to see how the gold market's demand dynamics move, along with the figures themselves, as the situation progresses.

Get Ready for Skyrocketing Inflation (And Gold), Says CIO

As the Fed swiftly acts to save the US economy, one financial expert predicts that inflation will a necessary component. Find out what this would mean for gold.

Photo by Flickr.com | CC BY | Photoshopped

According to Forbes contributor Bob Haber, the U.S. has wholly embraced Modern Monetary Theory (MMT), a concept that makes many an economist recoil. In its most basic definition, MMT is an amplified version of quantitative easing (QE) that essentially allows central banks to print as much money as they please and ostensibly offset the resulting inflation through taxing the wealthy.

While zero or negative interest rates and QE were already present around the world before the coronavirus, Haber notes that those loose monetary policies will soon seem moderate. He acknowledges that the Fed needs some tools to battle the unraveling recession, yet as the hyperinflated economies of Venezuela and the Weimar Republic show, uncontrolled money printing only moves in one direction.

In essence, inflation is the only way out of the existing economic woes that have combined with the latest blow to create a uniquely difficult situation. Ahead of the pandemic, the U.S. was already dealing with $23 trillion of debt and over $1 trillion of fiscal deficit, two issues that many considered unsolvable. Now, Haber expects the debt bubble to climb to $30 trillion by the end of 2020, paired with the likelihood of increased federal spending to stimulate the economy. To add, there is also an ongoing pension crisis that will hardly change for the better with recent developments.

To Haber, there is only one path for the Fed, and it is a clear one. The central bank has already printed $1.4 trillion over the past two weeks, with the Bank of America equating this to $1 million printed every minute. Evercore ISI estimates that the Fed's $5.7 trillion balance sheet, one that the bank was looking to reduce not too long ago, could double by July. If it does, it will represent 50% of the national GDP, a baffling contrast to the 5% it represented in 2008. As Haber notes, the only remedy for this is to wholeheartedly embrace inflation in order to make $1 trillion seem closer to $100 billion.

Just as the Fed has a single path of action ahead, so do investors looking to respond to the paradigm shift that has arrived. The average investor who previously held a gold allocation between 5% and 10% will need to reassess the landscape and consider increasing said allocation to 15%-20% as the money supply expands.

As Haber points out, investors haven't been waiting around for inflation to take its toll and have already jumped on the gold wagon to protect their wealth. When gold prices peaked in 2012 around $1,900, large funds held 82.5 million ounces of gold. Now, Bloomberg data shows that fund holdings have already climbed to 91.2 million ounces. Aside from commercial investors going long gold across the board, Haber also points out that mining companies have warned that the production of the metal has essentially peaked. Haber firmly believes that gold is not only primed to soar past its all-time highs, but also keep moving up so long as the Fed sticks to its ultra-loose policy.