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.

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.

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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.

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.

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.