Gold and Silver Continue to Show Promise

With precious metals enjoying solid performances in 2019, Institutional Investor's Gregor Spilker outlines why he believes the future continues to be bright.

As Institutional Investor's Gregor Spilker points out, 2019 has been a good year for the precious metalsmarket. All four precious metals have enjoyed sizeable gains since the start of the year, as investors' appetite for risk-off assets has intensified amid various geopolitical escalations. Yet, as Spilker notes, gold has managed to stand out from its fellow metals by a considerable margin as the market continues its best run in years.

Gold first breached the $1,400 level in June, its highest mark in six years, on the back of a dovish turn by the Federal Reserve. Gold's performance was all the more impressive given that the outbreak happened during what is generally regarded as the metal's weakest quarter. Having managed to avoid the usual summer doldrums, gold climbed as high as $1,553 at one point, with private banks across the board upping their price forecasts for 2019 and 2020. Year-to-date, the yellow metal is up nearly 20%.

Gold's stellar run further highlighted the strange valuations in the silver market. Although the two metals generally move together and silver also saw its share of gains this year, the gold/silver ratio is currently just shy of 87, which is not too far off from September's all-time record of 92. With an average of 64 over the past two decades, silver's price is roughly 33% lower in contrast to gold than it has been in recent years. Analysts and pundits have pointed out that instances such as these have resulted in a massive price catch-up in the silver market, and Spilker notes that some investors are bracing for a normalization of the gold/silver ratio.

Platinum is experiencing similar price issues, with an unprecedented $600 premium on gold over platinum. This is especially conspicuous, as the metal was priced higher than gold before 2010. Spilker believes that a reduction in demand from the automotive industry is partly to blame, adding that both investors and jewelers may want to capitalize on historically low prices.

Yet palladium, whose demand is twice as dependent on the automotive sector, has managed to move above $1,600 for the first time ever this year. In doing so, it has nearly doubled in price compared to the lows of July 2018. According to Spilker, this could be a result of tighter emission standards, a move away from diesel engines and the relatively few mining options available.

Nonetheless, for most investors, gold's breakthrough across multiple long-held resistance levels over the span of just a few months has been the tale of the tape this year. With numerous forecasters calling for gold to hit $1,600 and above in 2020 and the silver market potentially facing a major price explosion, there appears to be plenty more action in store for precious metals as we move into next year.

The Drivers Helping Gold Stay Above its Six-Year High

There's more than meets the eye when it comes to gold's recent performance.

Last Wednesday, the Federal Reserve met market expectations by cutting interest rates for the first time since 2008. The 25-basis-point cut was priced in for much of July after the Fed shifted its monetary policy and, while definitely supportive of gold prices, did little to change the metal's upwards trajectory. Gold is still hovering near six-year highs, having ended the last trading session at $1,443 an ounce.

Although Fed Chair Jerome Powell left open the possibility of more rate cuts later this year to support the economy, an article on Newsmax reports that there are many other drivers pushing gold towards its third straight month of gains.

The metal's haven appeal has taken center stage amid widespread concerns over global growth and fears over a possible recession. According to a gauge by the Fed Bank of New York, the risk of a U.S. recession happening in the next 12 months is at its highest since 2008. The International Monetary Fund (IMF) once again reduced its growth outlook, already the lowest since the financial crisis, and added that things are unlikely to change in 2020.

Various global economies are playing their part in the IMF's grim outlook as each suffers its own industrial slowdown. Singapore, which boasted a prosperous economy not too long ago, now faces the risk of a recession as its exports fade. Shrinking factory output in countries like Germany and France also points to weaker growth in Europe in the near future, backed by the European Central Bank's own slashing of the growth forecast. China's economy has also found itself on shaky grounds due to increased pressure on its exporters.

Lakshman Achuthan, co-founder of the Economic Cycle Research Institute, recently told Bloomberg that countries worldwide are in the midst of a cyclical downturn in industrial growth. Achuthan expects this downturn to continue, adding that Powell had previously alluded to deeper problems holding the global economy back.

Besides recessionary concerns, gold has received plenty of support from wary buyers as a new crisis appears to flare up on a weekly basis states Newsmax. The long-standing trade dispute between the U.S. and China is now looking to envelop several other nations as well. Brexit remains an issue to be resolved three years after its vote was passed, and tensions in Hong Kong and over the Strait of Hormuz have also given investors pause.

James Steel, chief precious metals analyst at HSBC Securities, said that investors are turning to gold due to its liquidity and independence from any government, particularly during a time of mounting global debt and less appealing bond choices. Large speculators are once again bullish on gold's long-term outlook, having recently boosted their positions to their highest since September 2017. In a post published last month, billionaire investor and founder of Bridgewater Associates Ray Dalio spoke about a global economic paradigm shift that will include depreciating currencies and international conflict. Dalio added that gold and other precious metals will continue being outperformers in this new environment.

Gold Price to Push Higher Between 2nd and 3rd Quarter

Orchid Research believes recession fears will help gold's price trend continue.

In their latest analysis, precious metals firm Orchid Research went over some of the reasons that should push gold even higher between the second and third quarters. According to an article on Kitco, despite summer traditionally being gold's weakest period, the metal has seen tremendous price action over the past few weeks and continues to hold steady above the $1,400 level.

Most agree that the major inflows in gold stem from increasing fears over the global economy's state, as well as the Federal Reserve's policies. Orchid's analysts think we're in for a continuation of this trend over the next few months, as fears over a potential crisis persist.

According to Kitco, the report points out that gold has managed to hold strongly and move around six-year highs even against a robust dollar, illustrating the amount of appetite for safe-haven assets among investors. The analysts said that recession fears could very well drive gold prices even higher moving forward, especially in the face of the Fed's recent policy decision.

Nearly every tightening cycle in the U.S. has ended in a recession, and the Federal Reserve has been on a rate-hiking tear since 2015. However, Kitco reports that the force of their recent U-turn suggests that a likely upcoming recession could be more impactful than previous ones. Far from merely ending their hiking schedule, Fed officials immediately suggested that a lengthy period of rate cutting could be on the way.

This, according to Kitco, reinforced the view that U.S. growth is slowing down and that the era of optimistic investment is drawing to a close. President Trump's push for a more dovish Fed board, which include ample rate cuts and a potentially weaker greenback, only served to strengthen this notion.

The Fed's Treasury spreads model alone has steadily upped the chances of a recession occurring in the U.S., moving them from 29% in May to 33% in June. Many analysts are far more pessimistic when taking other factors into account and believe that a U.S. recession this year is a near-certainty.

Besides a fear-inducing growth slowdown, Orchid said that gold will keep benefiting from central banks' ceaseless increases in bullion purchases. Last year, the official sector blew away all forecasts by buying over 650 tons of physical gold combined. A major point of this development has been the re-entry of several countries whose central bankers have shown little interest in bullion over the previous decade. Orchid noted that the past few months have seen steady buying from nearly every emerging-market country, supporting the notion that central bank gold demand is ramping up heavily. China has recently served as the premier example of this, as the PBOC made a loud return to the gold market with 74 tons of gold bought in the first five months of 2019. In June, China's central bank showed no signs of slowing down by adding another 10.3 tons of gold to its reserves.

Orchid also noted that, at current prices, silver offers tremendous value to potential investors. Relative to gold, the metal currently sits at its cheapest point since 1992, providing a very interesting alternative proposition during a time of geopolitical and economic uncertainty.

Gold Market Could See Major Breakout

Brexit troubles could help clear the path for gold to reach $1,400 an ounce by year's end.

Gold prices have remained virtually unchanged over the past week, even as a surprisingly optimistic jobs report gave the stock market some much-needed breathing room. According to a recent article by Kitco, however, the lack of any real price movement in the gold market may represent a calm before the storm, one that could end in a major breakout.

Gold’s price invariably thrives during times of geopolitical strife, writes Kitco, and there appears to be no shortage of the latter coming from different corners of the globe. Britain's troubles surrounding their exit from the European Union have made the headlines of most outlets in recent days as Theresa May's government appears unable to broker a deal with Brussels.

With the April 12 deadline for a satisfactory agreement fast-approaching, May requested that negotiations be postponed until June 30. According to the article, should the EU dismiss the request, Britain will be forced into a hard exit from the alliance, which could have numerous dire consequences. These include a devaluation of the sterling and even a potential revision of the Irish border.

Although a Brexit extension could help avoid this scenario, it will further erode the trust of British citizens as their parliament struggles to satisfy Brussels, suggests Kitco. The situation plays into existing tensions in the eurozone, which include Italy's opposition to Brussels' budget terms, an ongoing migrant crisis and an increasingly dovish European Central Bank.

The ECB recently downgraded its growth forecast and placed into question the prospect of hiking interest rates this year. An official announcement is scheduled for next week, and confirmation that rates will remain stationary could provide gold with additional leverage.

On the domestic front, the Federal Reserve's dovish turnaround in March already helped boost gold prices. The minutes from the meeting will be released on Wednesday, and market watchers will be looking to scour the transcript for details on just how far the Fed intends to pull back.

Although a potential U.S.-China trade deal could subdue gold prices in the short term, President Trump said that negotiations will likely last for weeks, leaving investors with little certainty. The culmination of the Mueller probe did little to calm domestic political tensions, and Trump's collision with Russia over Vladimir Putin's support of Venezuelan president Nicolas Maduro is yet another source of concern.

Traders are now waiting for next week's CPI and PPI reports, and Kitco says signs of rising inflation would likely translate to immediate short-term gains in gold prices. Over the longer term, gold should receive plenty of support as equities resume their downtrend, said Ross Strachan, senior commodities economist at Capital Economics.

Combined with weaker growth projections in both the U.S. and Europe, Strachan believes the path has been cleared for gold to reach $1,400 an ounce by year's end.

ABN AMRO Predicts Gold to Reach $1,400 Before End of Year

Georgette Boele says gold hasn't lost any luster from the previous months, and its outlook for the rest of the year is still exciting.

As gold moves back and forth across the $1,300 level, Kitco reports that Dutch bank ABN Amro stands by its prediction that the metal will see $1,400 an ounce before the end of the year. Georgette Boele, the bank's coordinator of foreign exchange and precious metals strategy, explained in her latest precious metals report why she sees gold heading higher and higher as the year progresses.

Despite occasional dips, Kitco writes that gold remains comfortably in the green since the start of the year. Furthermore, prices have held their ground above the 200-day moving average even during periods of selling, something Boele sees as very optimistic.

Boele and her firm believe gold hasn't lost any of its luster from the previous months, and that the metal's outlook for the rest of the year is still exciting. Although the troubles in equities have lessened a major hurdle for the gold market, Boele noted that a persistently robust U.S. dollar and a sudden, albeit short-lived, spike in Treasury yields will be gold's main competitors in the near-term.

Nonetheless, the analyst thinks that gold could climb to the $1,365-$1,375 level over the next few months even in the face of these headwinds. Later in the year, Boele expects the pressure from the U.S. dollar to subside, driven largely by a change in policy by the Federal Reserve.

It's hard to argue that years of monetary tightening have weighed on gold, even though the metal's price held up with as many as four rate hikes per year. Many experts think that 2019 will be the year when the Fed finally dials down on its hawkish strategy, or even reverses it, writes Kitco. Boele concurs, adding that the Fed's gradual wrap-up of its hiking cycle will be accompanied by dovishness from other central banks.

The latter point has already been highlighted by the European Central Bank's announcement that it would not raise interest rates for the rest of the year. In the same announcement, the ECB also slashed its growth forecast by a wide margin, which many interpreted as another bullish signal for gold, reports Kitco.

The spike in yields should also prove to be inconsequential, says the article, as analysts have pointed out that Treasuries are on a long-term downwards trajectory, with the yield curve nearing flat status. A flat yield curve signaled the last two market crashes, building on existing concerns that an economic slowdown and a possible recession are on the way.

Gold Ready to Recapture Levels Not Seen Since 2016

Sprott Money CEO says current landscape is more favorable for gold than two years ago.

2016 was the last time gold climbed past the $1,370 level, brought up by a string of geopolitical concerns and a weaker dollar. But now, having already crossed the $1,340 mark, the metal looks ready to recapture levels last seen two years ago, while also setting new records in the process, reports Kitco.

In an analysis on Sprott Money, Global Pro Traders CEO David Brady explained why he thinks the current landscape is even more favorable for gold than 2016 was. According to a recent Kitco article, despite a robust greenback, which is often seen as one of its main headwinds, gold still managed to surpass $1,340 an ounce since the start of the year.

This display of strength is set to continue, said Brady, who sees gold heading towards the 2016 high of $1,377 this year, largely driven by central bank policies. As Brady noted, the Federal Reserve might be looking at a policy U-turn after hiking interest rates on an annual basis since 2015.

According to Kitco, the recent dovish stance expressed by Fed officials could soon make way for quantitative easing (QE), an inflationary policy that has heavily benefited gold in the past. Brady and other analysts contend that a new QE program will drive prices up, yet without the prospect of higher rates or Treasury yields. This will be the perfect environment for gold to stage its bullish run, said Brady.

The strategist feels that the recent sentiment turnaround among money managers is testament enough that gold is soon heading up. In just fourteen weeks, speculators slashed their short gold positions by more than half, which speaks good things about the metal's direction, reports Kitco.

Past the Fed situation, Brady feels that central bank policies around the world will likewise prove supportive of gold. As the CEO noted, all of these policies are ultimately setting fiat currencies up for depreciation, and gold is often cited as the best and surest protection from wealth erosion.

After hitting the $1,377 mark, Brady expects gold to pull back and potentially test several support levels along the way. This pullback, however, will merely act as part of an over-arching upwards trend that will eventually lead gold to new highs before the end of the year.

Meanwhile, Brady expects the opposite to happen with the dollar index (DXY). After so many months of persistence, the CEO finally sees the DXY peaking and falling to a figure as low as 80, which will be another highly bullish development for gold.

Goldman Sachs Analyst Shares Why Bank is Raising its Gold Forecast for 2019

Goldman Sachs sees gold soaring to $1,425 over next 12 months.

In a recent note to clients, Goldman Sachs' analysts announced that the bank is raising its forecast for gold going into 2019, reports CNBC. Goldman's previous forecast was bullish in its own right, with the bank calling for $1,250, $1,300 and $1,350 an ounce over the three, six and 12-month periods, respectively.

But now, the analysts expect gold to inch even higher this year. According to a CNBC article, Jeffrey Currie, Goldman's head of commodities research, said in the note that gold will hit $1,325 in the next three months before moving on to $1,375 by the end of the second quarter. The bank sees gold soaring to $1,425 over the next 12 months.

In the note, Currie explained that the change in forecast centers around a quick reversal of sentiment following a re-emergence of risk, states the article. Whereas the previous year saw many investors chase profits backed by the confidence from a strong dollar, the landscape in 2019 could be markedly different.

Various reports indicate that U.S. growth could be heading towards a slump after a prolonged era of Fed-fueled optimism. The U.S. Purchasing Managers Index (PMI) slipped to a 15-month low in December, with manufacturers' confidence in business likewise dropping to the lowest level in almost two years. According to the article, these economic reports build on existing concerns that the Fed has thus far largely ignored, such as the prospect of peaked-out employment.

Nonetheless, the central bank appears ready to dial down on its hawkish rhetoric, with Fed Chair Jerome Powell recently assuring market participants that officials will be ready to adjust the hiking strategy based on market response.

Currie noted that the traditional correlation between rate hikes and gold could be absent this year. According to the article, despite some feeling that higher rates reduce the appeal of owning bullion, Currie firmly believes that risk aversion and fears of a recession will trump the desire for bigger profits.

Recessionary concerns appeared to be validated last month, when U.S. stocks suffered their worst December since the Great Depression. The performance was especially striking as the final month of the year tends to be a strong one for equities. Gold returned more than 4% in that month, and in doing so outperformed the previously record-setting stock market.

Currie stressed that the shift in sentiment will be a key driver of gold prices this year, reports the article. Besides individual investors, the analyst said that central banks will adjust their strategies in accordance and continue upping their monthly bullion purchases. Governments already showed a heavier-than-usual predisposition towards gold in 2018, with data suggesting that total central bank purchases for the year exceeded 450 tons.

"Mad Money" Host Disagrees With Latest Rate Hike But Sees Potential in Gold

Jim Cramer believes latest rate hike was ill-advised.

Last week, the Federal Reserve met market expectations by raising the borrowing rate another 25 basis points, reported CNBC, bringing it to a total of 2.5%. Addressing the public after the hike, Fed officials hinted towards less hikes in 2019 but appeared confident in their decision to raise rates four times this year.

According to the CNBC article, even before the latest hike, many criticized the Fed for ignoring important data metrics and instead, powering through with their agenda. Just days ahead of the hike, President Trump took to Twitter to criticize the Fed's policy amid a possible slowdown of the U.S. economy.

In Thursday's episode of "Mad Money", CNBC host Jim Cramer underlined why this month's hike was ill-advised, especially in the context of additional rate hikes in 2019. Additionally, he pointed out that the central bank's hawkish tone can only persist through willful oversight of important data.

This includes a projection for slower GDP growth in 2019 and the looming threat of maxed-out employment. According to the article, some have also felt as if the Fed is turning a blind eye to the recent stock crashes and what they might mean for the economy going forward.

To Cramer, the last point is especially poignant as stock investors have been placed on thin ice by the Fed's hawkish rhetoric. The host shared his view that equity investment right now hinges on the chance that Fed Chair Jerome Powell becomes more recipient towards red flags and simmers down on tightening.

Despite the concerning implications of future rate hikes, Cramer reminded viewers that there is always a profitable market out there. After four rate hikes in 2018 and promises of several more next year, Cramer sees little alternative to gold investment as the best possible bet.

The analyst said we will see a bull market in gold as the true state of the economy becomes apparent, reports CNBC. In particular, Cramer pointed to several sliding stocks as proof that the economy is slowing down faster than Fed officials would like to admit.

While rate hikes are considered bad for gold, the markets usually price in future hikes months before they happen, alleviating any downside to the metal. With so many cautioning against the consequences of successive rate hikes in a slowing economy, what is usually seen as a headwind could act as the catalyst for the next bull run in gold, stated the article. Cramer certainly seems to think so, as the host compared his feelings of distress post-hike to the tense atmosphere of 2007, right before the global financial crisis hit.

Precious Metals Analysts Bernard Dahdah Sees Gold Shining in 2019

Natixis sees imminent economic growth slowdown and accompanying upturn in gold.

As gold investors try to guess what 2019 could bring, one French bank is bullish on the metal's prospects next year amid a change of economic climate in the U.S. Talking to Kitco, Natixis' precious metal analysts Bernard Dahdah said his bank sees an imminent economic growth slowdown and an accompanying upturn in gold prices.

The average domestic investor has had little difficulty maintaining optimism this year. The Federal Reserve proceeded with its hawkish agenda, backed by positive economic data reports and a high-riding dollar. President Trump's historic tax cuts also extended his campaign promise of a reinvigorated U.S. economy. But according to the Kitco article, several flash crashes in the U.S. stock market, most recently in October, affirmed to investors that trouble might be brewing.

Dahdah points out that market participants were quick to rejoice over tax cuts while ignoring the more significant issue of budget deficit. Whereas the cuts were only intended to serve as a short-term stimulant, the article writes that the $985 trillion of projected deficit for 2019 is a long-lasting issue without an easy solution.

Dahdah expects the U.S. deficit to become more prominent next year and force government officials to take a step back. The fading of the stimulus effect will place further pressure on stocks, likely leading to more corrections. Meanwhile, the Fed will wrap up its tightening cycle after years of successive hikes.

According to the article, this environment of stagnant growth and tumbling stock valuations will play directly into gold's hand as investors rush to move away from riskier assets. The weakening of the dollar, expedited by the change in Fed's policy, will remove additional pressure from the yellow metal. Dahdah said that the dollar index will face more hurdles as central banks around the world commence their own tightening.

The return of uncertainty will quickly bolster gold prices, and Dahdah sees the metal averaging $1,275 an ounce in 2019. However, the analyst noted that gold has plenty of catalysts waiting in the wings, and that the metal could shoot up to $1,350 an ounce next year.

Natixis also sees great things in store for silver after a middling year. According to the article, the bank predicts silver will catch up to gold due to renewed interest in commodities, thereby closing the gap in the highest gold-silver ratio since 1993. Dahdah said that investor demand will push silver to an average of $16 an ounce in 2019 with the possibility of a climb to $18 an ounce.

Analysts Say Gold Poised to End Year on a High Note

Gold expected to do well in the last few months of the year with more upside potential in 2019. 

Having gained 3.5% over the previous week, gold seems poised to end the year on a high note after two mild quarters says CNBC. The CNBC article writes that different analysts expect the metal to do well in the last few months of the year before moving on to post a strong performance in 2019.

Jim Steel, chief precious metals analyst at HSBC, attributes gold's performance this year to an overbearing dollar which, along with higher-yielding Treasury notes, diverted some safe-haven demand away from the yellow metal. According to CNBC, Steel said gold was severely oversold below the $1,200 level, as it recently had the largest amount of shorts since 2001. He explained that dips such as these are bound to attract bullion investors, especially those in Asia.

Steel noted that bearish sentiment among speculators created an excessive short position that could ultimately act as strong support if sellers end up having to cover their bets due to higher prices.

Although a pick-up in physical demand in emerging markets played an important role in the price spike, Steel thinks the concerning equity picture is what really placed gold back into the spotlight reports the article. The S&P 500 index notched major daily losses in back-to-back weeks as investors grew increasingly worried over tensions between the U.S. and China, shaky emerging markets and economic issues brewing in the eurozone.

According to CNBC, the Fed's assurance that rate hikes would continue into the new year was another source of concern, with some feeling that the central bank is too eager to tighten. But Bart Melek, head of commodities strategy at TD Securities, believes the Fed might not follow through with its intent to raise the funds rate above 3% by the end of 2019. In particular, he says the Fed could be dissuaded from tightening by additional flare-ups in the stock market.

Melek noted that a drop in the 10-year yield from above 3.25% to 3.15% also helped gold take back safe haven demand. A loss of faith in the dollar's long-term picture could further strengthen gold's case in the near future.

The strategist sees gold holding onto its gains as the year comes to a close, expecting an average of $1,225 for this quarter. From there, Melek thinks the metal will average $1,325 an ounce by the fourth quarter of 2019.

HSBC predicts that the metal will average $1,274 an ounce this year with plenty of upside potential in 2019. Steel pointed to record volatility that the markets suffered from earlier in the year, which brought the metal to $1,360 an ounce. According to CNBC, he expects the markets to slip back into turbulence again, cementing gold's long-term position and giving way to ample short covering among speculators.

Incrementum AG Fund Manager Says Now is the Time to Buy Gold

Gold market has reached its lows for the year, with prices to gain traction as investors lose optimism.

According to one notable strategist, the gold market will soon see a strong shift in momentum and an accompanying spike in prices. A recent article on Kitco features Ronald-Peter Stoeferle, fund manager at Incrementum AG, and why he believes gold is headed towards an uptrend in the near term.

In the article, Stoeferle says that the gold market has already reached its lows for the year, and that prices will begin to gain traction as investors lose some of their optimism. Stoeferle added that gold's current levels make right now a good time to load up on bullion.

The money manager listed several favorable developments that will keep gold ahead in the coming months. According to the article, signs show that the recovery in the dollar is already losing steam and that investors are being less confident regarding the greenback's future. Stoeferle said that the dollar is bound to go down as the Federal Reserve rounds up its tightening cycle.

As investors come to realize that the Fed doesn't have a lot of hiking room left, the article states the dollar's rally will begin to fade. Stoeferle said that the downturn in the dollar has been a long time coming, noting that many investors were shorting the currency at the start of the year.

The fall in the dollar will coincide with another round of trade tensions and the ensuing market stress reports the article. He sees the potential threat of a trade war as a big statement in gold's favor, as the fallout could act as a major booster for the gold market. Stoeferle said that the growing global uncertainty could force the Fed to return to a looser monetary policy, which would further support the metal.

Stoeferle feels that his forecast for the dollar goes in line with key U.S. officials who have stated that a weaker dollar would be positive for trade. Even President Trump has, on several occasions, likewise called for a lower dollar in order to strengthen U.S. trade.

Although the booming stock market has been gold's greatest nemesis, the article writes that equities will end up bolstering the metal's price. Like numerous analysts, Stoeferle thinks that the record-setting equities are finally winding down. He views the trouble in emerging markets as an omen and a sign that the rest of the stock market will soon follow. The weak technical picture in the stock market is another point that gold will draw strength from.

To Stoeferle, the metal's tenacity in difficult times is the surest indicator of its ceaseless value. Even when other assets posted historic runs, gold remained competitive and avoided selloffs while waiting to make its move up.

ING Analysts See Gold Hitting $1,400 This Time Next Year

ING's team believes gold stands to gain more from uncertainties than it has in recent months.

According to a recent report by ING, gold will eventually break past its current levels and make a run above $1,400 an ounce. Kitco reported that the metal has enjoyed numerous positive geopolitical and macroeconomic developments, which included the U.S.-North Korea conflict, trade tensions between the U.S. and various countries and several flare-ups within the eurozone.

ING's team believes that the metal stands to gain much more from these uncertainties than it has in recent months. Besides current tailwinds, ING's commodities strategist Oliver Nugent said that the metal will be assisted by several new catalysts.

One of the primary drivers of the breakout, said Nugent, could be a willingness by the Federal Reserve to allow inflation to run past the targeted rate of 2%. The article writes that inflation only recently moved towards the long-coveted 2% after trending downwards for a prolonged period of time. Some analysts warned that the sudden reversal could mean an explosion of the inflation rate past what the Fed could manage.

These concerns could prove valid as inflation continues to run upwards, having most recently clocked in at 2.5%. Should the Fed allow inflation to run its course, whether by choice or necessity, gold would find itself among the primary beneficiaries reports Kitco.

A shift in inflation expectations would also help move gold towards ING's forecasted price. While expectations have been subdued in recent months, Kitco writes the steady uptrend in inflation could eventually affect sentiment and tell market participants that it's time to brace for significantly higher prices.

Although there is little question that lower bond yields play in gold's favor, Nugent thinks that the drop in Treasuries was another booster overlooked by the gold market. Nonetheless, the ongoing loss in yields should prove to be a major factor in gold's rise predicts Kitco.

"Since its peak two weeks ago (May 16th) US treasury yields have fallen hard, boosting gold's appeal as a non-yielding asset and supporting a brief break above $1300/oz. The ten year has dropped from a high above 3.1% to a low of 2.78%, before recovering slightly but still remains below the psychological 3%," said Nugent.

The analyst believes that geopolitical tensions could come to a head as the G7 summit draws to a close, with many of the attending countries being at odds with one another over trade issues. Strong physical fundamentals will also support gold, said Nugent, with recent Swiss export statistics featuring a prominent upgrade. The country recorded a 2% increase in bullion exports for the first four months of 2018, an increase driven largely by Chinese demand.

Ultimately, ING believes gold's long-term trajectory is set in stone, as the bank expects the metal to average $1,400 an ounce by the second quarter of 2019.

Gold to Emerge as an Important Asset for Current Times

Despite a tame month, gold is set to remain a key part of any portfolio.

Although multiple factors converged to push gold prices lower in April, an article on Financial Express says the metal could still emerge as the year's marquee asset due to the state of the global economy.

Besides temporary relief from geopolitical tensions and a rise in bond yields, a stronger U.S. dollar was also a major contributor to a tame month for gold. After a prolonged decline that raised eyebrows with both domestic and foreign investors, the dollar index finally caught some respite and reversed its trajectory. According to the article, the greenback now sits at multi-week highs, a position largely influenced by the Federal reserve's hawkish stance.

Having left interest rates unchanged during their latest meeting, the Fed nonetheless affirmed their previous forecast for a total of three rate hikes in 2018. Officials also expressed their desire to continue with the monetary tightening for the foreseeable future should current economic conditions persist. And while successive rate hikes are generally seen as negative for gold, there are ways that the metal could reap the benefits from this aggressive policy says the article.

To some, the Fed's current course is analogue to taking away the proverbial punch bowl. Given the loose monetary policy of the last decade, a sudden shift to a more austere approach could shock the laid-back markets. Among the worst to suffer this effect could be the long-soaring stock market states the article, which recently begun to show cracks after seeming invulnerable. The Fed's goal of reducing their balance sheet by $420 billion this year and $600 billion the next could slowly introduce discord into equities. Despite tax cuts and other encouraging developments, 2018 could see investors' optimism dwindle as they wake up to the reality of a lesser money supply.

Inflation expectations could act as another source of gold's strength. The Fed is confident that it can maintain the targeted inflation rate of 2%, and much of their current agenda rests upon it. But many are quick to forget that inflation was moving in the opposite direction for some time, raising concerns that the reversal was achieved too quick. Given that the ideal 2% have already been surpassed, the Fed could find itself struggling to deal with soaring inflation. In this environment, the article says gold would quickly become a most-desired commodity.

The economic tug of war between the U.S. and China will also continue to remind investors that gold is a key part of any portfolio. Despite the seeming calmness in recent weeks, the situation is only beginning to develop, and the leaders of both countries are unlikely to back down. Global growth, industrial metals and energy will all come under attack should the threat of a trade war return.

The article states that this would harm bond yields as investors shun U.S. debt, and the rapid expansion of the latter has already placed the dollar's long-term purchasing power into question.

Regardless of short-term happenings, the ongoing lack of equilibrium in the global economy along with constant geopolitical flare-ups are sure to preserve gold's favor among risk-averse investors.

International Bullion Firm Claims Gold a Good Insurance Policy

Analysts say prospects of higher rates does little to take away from the metal's appeal.

Last week the Federal Reserve met expectations by hiking interest rates for the first time in 2018. While gold's price trended lower in the aftermath of the hike, Kitco reports that one international bullion firm believes the prospect of higher rates does little to take away from the metal's appeal.

In their latest report, analysts at Degussa said that investors should view price dips as an entry point given the various factors that make gold investment a prudent strategy. Besides general protection against fiat currency manipulation, the firm pointed to the possibility of rate hikes leading to a recession as a particularly poignant reason to consider gold in one's portfolio.

Using the same analogy that multiple other analysts have turned to, Degussa explained how the Fed's hikes could ultimately have a major adverse effect.

"The Fed's tightening policy is like taking away the 'punch bowl,' and if it raises interest rates too much, the party would definitely come to an end. It is against this backdrop that gold, even in times of slightly higher real interest rates, is increasingly attracting investors, which has ultimately led to a price increase," said the report.

Although gold is mostly seen as an asset, the analysts noted that the view of the precious metal as global currency is gaining traction, namely because of inflationary pressures that erode faith in fiat money. Gold is frequently pitted against the dollar and soars in times of a weaker greenback, but Degussa's team noted that the metal continues to outperform a basket of global currencies.

"The price of gold should, over the long run, compensate its owner for the loss in the purchasing power of fiat currencies," the firm said.

The markets were near-unanimous regarding the likelihood of the latest hike, but there is plenty of doubt in regards to the Fed's future course of action. The Kitco article writes that while some believe the Fed could hike rates up to four times this year, especially given the hawkish tone of new chair Jerome Powell, others cast doubt on their ability to raise borrowing costs further.

According to Kitco, another factor that could play in gold's favor is a potential shift in the Fed's rhetoric. The central bank bases its current strategy on forecasts of a stronger economy and a lower unemployment rate, with hopes that inflation will reverse its backwards trend and meet the targeted rate. Despite their optimism, some market participants believe that the Fed will alter its prognosis in one or more areas, which would give rise to higher gold prices and serve as an additional deterrent from successive rate hikes.

Official casts doubt on Federal Reserve policies

A long-time Fed is worried: "We're not going to be able to hold the line anymore."

In a recent interview with the New York Times, Charles Plosser, president of the Federal Reserve Bank of Philadelphia, voiced some serious concerns over the long-term effects and ramifications of the Fed's ongoing loose monetary policies.

Plosser, whose term as a key policy maker in the bank will end in March, has often criticized the Fed's policies during his nine-year term on the board.

Plosser maintains that history has proven that monetary policy is only a temporary way to assist economic growth and that, once we reach a tipping point with the Federal Reserve's loose monetary policies (such as Quantitative Easing and near-zero interest rates), we will experience significant negative backlashes. Most recently, the European Central Bank experienced this first-hand when the Swiss National Bank de-pegged the franc from the euro, thus sending the value of the euro plummeting. According to Plosser,

"At some point the pressure is going to be too great. The market forces are going to overwhelm us. We're not going to be able to hold the line anymore."

Plosser argues that the idea that low inflation somehow indicates a weak economy was rebutted in the 1970s, and therefore calls for raising short-term interest rates ahead of time – regardless of what the move's effects may be on inflation. By taking such an action, one of his primary hopes is to avoid reaching a point in the future when market forces dictate that the Fed must increase interest rates quickly. Such a scenario could be disastrous to the economy and cause significant volatility.

Plosser also stresses that any monetary or fiscal policies, especially as loose as those of the Federal Reserve, cloud our view of normal market conditions. He argues that we must deal with the economy in a realistic fashion rather than through unrealistic or overzealous application of stimuli. If anything, he believes that most of the Fed's loose policies should have ceased as soon as the financial crisis was over.

One major concern is what the consequences of the Federal Reserve's monetary policy will end up being, especially over the next five to ten years. Plosser claims that the real cost of what the Fed is doing has not yet been determined:

"I think the jury is still out on the costs. Because the cost I was worried about was the longer-term cost of unraveling all of this. So maybe I was right, maybe I was wrong. That remains to be seen."

Once the market realizes that the Fed can no longer keep holding interest rates back in order to increase liquidity, a snap-back in premiums will become unavoidable. This threatens to further plunge the economy into uncertainty and volatility as everyone would suddenly finds themselves with less money.

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Ukraine Crisis Will Hurt the U.S. Dollar: Peter Schiff

Russia’s invasion of Ukraine can ultimately hurt the dollar, says Peter Schiff, CEO of Euro Pacific Capital.

Until now, the markets have been immune to the crisis in Ukraine and other current, major conflicts around the world. But these conflicts can influence the Federal Reserve, according to Schiff.

“The real deal is the Federal Reserve,” he told Yahoo Finance, “we do have a difficult international situation that may give the Fed the excuse that it needs to postpone the taper and rate increases. That’s what the market wants. That’s what’s driving this market. That’s the only thing driving this market.”

The situation in Ukraine is volatile and highly unpredictable, but historically markets didn’t care much about geopolitics. Markets do get spooked by geopolitics on occasion, but they typically recovered quickly.

Schiff is more concerned about America’s reaction to Ukrainian crisis than the crisis itself. He says that he had expected the dollar to fall for some time. “We’re flexing a lot of muscle we don’t have,” he added, “and we’re irritating people we need to be sucking up to. America depends on its ability to export dollars to import all the things we don’t produce.”

"We're creating extra incentive for people to move away from the dollar," Schiff said.  "That could ultimately be the biggest problem for the market. A big drop in the dollar and acceleration of inflation would put pressure on the Fed to raise rates."

Peter Schiff famously made predictions about the crash of 2008, 2009.

“The people that were ridiculing me back then are still ridiculing me,” he told Birch Gold Group, “because I’m still warning that the real crisis hasn’t even happened yet. Because everything that the Federal Reserve has done, everything that the government has done since the financial crisis of ’08 has just made the problems that they were trying to solve worse. Problems that they caused.”

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Sources:

Russia’s invasion of Ukraine threatens the dollar: Peter Schiff

Peter Schiff Exclusive Interview: On The Dollar Crisis, Federal Reserve And Future For Gold Prices

Image by the Prime Minister of the Russian Federation