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.

Why Gold Prices Took a Hit Last Week

Gold prices hit their lowest levels in five years last week, trading below $1,100. What was the real driving factor behind the price's decrease?

Without a doubt, many will use recent developments in the global economy as an excuse. The Grexit no longer looks like a certainty thanks to a bailout of questionable sustainability. China's gold cravings seem to be lesser-than-usual. There's also the looming threat of an interest rate hike and a subsequent strengthening of the dollar.

Yet, upon further examination, none of these seem to be the guilty party that sent gold plummeting. China's gold demand is strong despite day-to-day deviations, and the U.S. rate hike isn't nearly as 'around the corner' as many believe. Most importantly, perhaps, gold is fundamentally different from other commodities, having different demand drivers.

Instead, Mining.com's Frik Els points out two recent events that he refers to as a 'one-two punch that floored gold price'; one from the U.S. and one from China.

Els argues that the U.S.'s part in gold's fall came via speculators in the Commodity Futures Trading Commission slashing their net-long positions, with managed-money accounts significantly reducing their exposure to gold futures. Many of these sales came as a result of uncertainty regarding the direction that the gold market is heading in.

Similarly, Els notes that China played its part by performing a massive gold sale worth $2 billion in just a matter of minutes. Due to its size, the Monday Shanghai Gold Exchange sale of 4.7 tons immediately caused gold to drop by 4.3 percent – gold sales usually average no more than 96 kilograms a minute on the SGE.

Els adds that these seemed an "almost concerted cross-continental effort to push price through support levels that the metal has bounced off numerous times before." Yet despite these drawbacks, gold still managed to bounce back to $1,100 almost immediately.

While such falls in the price of gold are universally viewed as negative, many buyers still see them as little more than a buying opportunity. As gold fell by over 3 percent in both India and Turkey, consumer interest in these markets grew – the metal's low correlation with other assets makes it ideal as a safety-net investment to diversify one's portfolio.

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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

Russia keeps buying gold and Chinese yuan, which may hurt the dollar

Russia is taking measures to protect itself against future sanctions from the European Union and the United States, says RT news.

The Russian Central Bank’s response to the rising pressure from Western economic sanctions has been to increase gold reserves and diversify away from the dollar and euro. Currently Moscow controls the world’s 5th largest foreign exchange reserves and the 6th largest gold reserves.

To protect itself from risks involving U.S. dollars and euros, in light of the ongoing crisis in Ukraine, Russia has cut its foreign currency reserves by 2.5 percent in the first half of 2014.

Rather than buying euros and dollars, the Russian central bank is now increasing bilateral currency swaps with China and other strategic trade partners. China’s central bank has agreed last week to increase currency swaps with Russia’s central bank.

Ebbing dominance of the U.S. dollar has worsened since the global financial crisis, and Russia’s measures to deal with the Western sanctions may accelerate its demise as the world’s reserve currency.

Global reserves of U.S. dollars has shrunk to under 61 percent from the 72 percent in 2001, according to Bloomberg, and since the global financial crisis Russia and other big emerging economies have promised to use their own currencies to conduct business.

Sources:

Russia seeks safe haven in gold, away from dollar and euro

Russia Sanctions Accelerate Risk to Dollar Dominance

Image by Prime Minister of Russian Federation