Here's Why One Analyst Sees Massive Upside Remaining for Gold

After already surging above $1,500 this year, Frank Holmes writes in Forbes that he sees reason for gold to go much higher in 2019. Find out why here

Earlier last week, gold briefly fell below $1,500 before jumping back to its current level above $1,520. Forbes contributor Frank Holmes believes dips like these present a tremendous buying opportunity considering what's in store for the metal. In his latest analysis, Holmes outlined three key reasons why gold could surge far past its recent 52-week highs.

As his first reason, Holmes lists the often overlooked, but paramount factor of U.S. inflation. Despite expectations that consumer prices would rise when President Trump took office due to his trade policies, the official rate of inflation has remained still for the most part over the past couple of years. Now, however, things might be finally catching up.

The August inflation reading showed that core consumer prices rose to an 11-year high, amounting to a 2.4% growth year-on-year. This represents the biggest inflation spike since September 2008. Adding to that, August's report also showed the biggest monthly rise in medical care costs since 2016 and record increases in health insurance costs. Combining this with the effect that import tariffs are likely to have, Holmes thinks that we are headed for a period of rapidly-rising inflation that will catch many off-guard. Gold has historically acted as the premier hedge in order to combat inflation and protect one's savings.

Holmes further points to what he calls the negative-yield phenomenon: currently, $17 trillion of global debt trades with a negative yield, which has helped pushed gold to all-time highs in a number of top currencies. Although negative-yielding bonds haven't reached the U.S. yet, Holmes expects Treasuries to soon be affected by the phenomenon as well.

Besides extremely disappointing showings by the 10-year Treasury and a much-feared yield curve inversion, Holmes also notes that the Federal Reserve has shown a willingness to cut rates in quick succession. A week ago, President Trump encouraged the Fed board to push rates to zero or below zero to compete with other top economies, after previously calling for a rate cut of 100 basis points. Should U.S. yields indeed fall into negative territory, it would not only eliminate a main haven competitor but also cause an immense surge in gold prices in dollar terms.

Negative-yielding U.S. debt is far from the only economic concern, as Holmes lists a slew of geopolitical and economic risks as his third reason for why gold is poised to keep moving higher. The trade tensions have played their part in slowing global growth, as factory production worldwide has now contracted for two straight months. The likelihood of a no-deal Brexit has also brought gold to an all-time high in pound sterling terms, as British investors rushed to the metal in preparation of turmoil. Flare-ups like the unrest in Hong Kong and the recent attack on Saudi Arabia's oil facilities have also kept investors on their toes.

In an interesting note, Netherlands' central bank (DNB) recently hinted to a belief that the monetary system could collapse, and that gold would serve as the asset to rebuild it. Holmes found this to be very much in line with the portfolio strategy of the official sector, as global central banks have been net buyers of bullion since 2010 and have lately upped their purchases by a tremendous margin.

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.