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.

2019 Just the Start for a New Bull Market in Gold

Will gold prices end 2019 on a high or low note? Joe Foster is confident that it will be the former, and explains his rationale here.

In a recent report, Joe Foster, portfolio manager and strategist at VanEck Gold and Precious Metals Strategy, contrasted this year's price breakout in the gold market against similar fireworks that happened in the first half of 2016. As Foster notes, the first half of 2016 saw gold prices advance by roughly $260 before pulling back and staying fairly range bound over the next three years.

Foster believes that investors are aware of the price action from a few years ago and are wary that the same thing might be happening again. However, the analyst dismisses these fears as unfounded, stating in the report that gold's performance in 2019 is nothing like the metal's previous price explosion.

Perhaps the most important thing to note is that gold has held onto the bulk of its gains with a little over two months left to the year. In comparison, gold prices began pulling back early on in the second half of 2016. Gold remains up roughly 17% since the start of this year, having held onto the critical support level of $1,500. As the end of 2019 draws closer, Foster also points to the many strong drivers that suggest a long-term move upwards for gold.

The strategist finds the factors that are propelling this year's gains to be much more pronounced. Whereas 2016 featured a hawkish Fed board and significant optimism in regards to the domestic economy, this year has painted an opposite picture. With little notice, Fed officials performed a policy U-turn around the beginning of summer and began cutting interest rates as a response to the protracted U.S.-China trade war.

Those global banks whose bonds weren't already in negative territory were quick to follow suit, with the European Central Bank's benchmark rate most recently dipping below zero. This has created a new norm of plummeting real rates and a record, rapidly-expanding $15 trillion of negative-yielding debt.

That demand for bonds, even in this environment, shows just how concerned investors are of the longest-running equity bull market in history finally changing course, adding to warnings that stock valuations are severely overblown. Global growth has also been a major concern, as factory data from some of the world's top producers hints towards a severe economic contraction in the near future.

To top things off, there have been multiple red flags signaling that a U.S. recession is on the way. Many have cited the latest inversion of the Treasury yield curve as a guarantee of an incoming recession. Those who doubt this omen may instead place their faith in the Federal Reserve, as the central bank has recently placed the risk of a domestic recession at its highest point since 2008.

Looking at the technical picture, Foster noted that gold will remain in an uptrend as long as prices hold above $1,365. While the metal has pulled back from its six-year highs, Foster and his team are certain that corrections such as these represent a minor bump in the road for what may very well be a multi-year bull market.

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.

Analysts Predict That Gold Has Enough Force To Move Above $2,000 An Ounce

Gold has seen colossal momentum so far this year, enabling the metal to pick up generally 20% since January

Gold has enjoyed tremendous momentum so far this year, allowing the metal to gain roughly 20% since January. The strength of its drivers became especially prominent this summer, when gold climbed above six-year highs during what is normally its weakest quarter.

Although gold continues to make moves above $1,530 an ounce and many analysts have upgraded their near-term forecast to $1,600 an ounce, a MarketWatch article reports others are seeing $2,000 as a more realistic level in gold's immediate future.

In a recent publication, Brien Lundin, editor of Gold Newsletter, drew a line between what he sees as short- and long-term factors powering gold's remarkable run. The former category includes the now-infamous U.S.-China trade war, whose ongoing escalation has sparked fears that the dispute will bear a heavy toll on the global economy, sending investors flocking towards safe-havens.

According to MarketWatch, other short-term boosters include renewed threats of a recession occurring in the U.S., which were present throughout the Federal Reserve's hiking schedule but came to special prominence due to the recent inversion of the yield curve in both the 2-year and 10-year Treasuries. The likelihood of successive rate cuts by the Fed and persistent weakness in global economic data reports have also played their role as gold's near-term tailwinds. Deric Scott, vice president and senior analyst at precious-metals retailer Metals.com, has also pointed to conflict in Hong Kong and Iran as two events that have been pushing investors towards safety.

Yet both Lundin and Stan Bharti, chief executive officer of private merchant bank Forbes & Manhattan, believe that there is a much stronger force driving gold's prices, which will ultimately result in gold surpassing its all-time highs. In the MarketWatch article, Bharti notes the last 8-10 years have seen investors jump onto the bullish bandwagon in the stock market in a low-interest environment. Yet Bharti thinks that this era is drawing to a close, and that inflationary concerns will once again drive investors back to hard assets.

Lundin also sees the likeliness of heightened inflation as a key element to higher gold prices, as gold has historically acted as the premier hedge against depreciating currencies. The analyst thinks that any indication of quantitative easing (QE) in the U.S. would send gold soaring. Recently, both the Fed and the European Central Bank have hinted towards looser monetary policies in the near future, including a possible return to QE programs.

Over the short-term, Bharti sees gold jumping from its current levels to reach $1,600 in the next quarter. By the end of next year, the CEO expects gold prices to climb above $2,000 an ounce. Lundin echoed Bharti's sentiment, stating that gold's climb to $1,800 or $2,000 is a near-certainty over a longer stretch of time.

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.

Multiple Analysts See Gold Rebounding in the Long Run

The general consensus is gold is in a position to retrace, it's just a matter of how far.

As gold approaches the finishing line for a lukewarm quarter, a recent Kitco article reveals multiple analysts see the metal rebounding as we move closer to December. In an interview with Kitco, ICBC Standard Bank commodities strategist Marcus Garvey stressed that gold's lack of performance this summer is merely the result of an outperforming dollar.

However, the greenback could be testing the limits of its rally in the near term says ABN Amro precious metals and diamond analyst Georgette Boele. In the article, Boele adds that her bank expects a moderate recovery in the Chinese yuan, which should further support gold through year-end.

Analysts also took note of the record net short positions amid gold traders, interpreting them as a sign that a rebound is close. In the article, Garvey pointed out that lower prices have an upside as they open up new windows for physical demand, especially in India. To him, this is a familiar set-up for a short-term rally, one that could be triggered by minute news of slower U.S. growth or improved U.S.-China relations.

The general consensus appears to be that gold is in a position to retrace, with various opinions as to how far. According to the article, FXTM research analyst Lukman Otunuga and TD Securities commodity strategist Ryan McKay both view $1,200 as a very important psychological level, adding that it would be a bullish sign if prices manage to hold above it. On the downside, the two analysts see $1,160 an ounce as the worst-case scenario. Kitco's senior technical analyst Jim Wyckoff feels that bearish sentiment in the gold market could be nearing exhaustion, and that prices should steadily move up beginning next week.

Predictions for the six-month period are more positive, as analysts agree that the metal could be bottoming out soon reports the article. ABN Amro sees the metal reaching $1,250 by December before climbing to $1,400 by the end of next year. Gold's recovery will move across the $1,200 range and potentially reach $1,300 an ounce within six months, said Garvey, who also dismissed the view of the dollar as a safe-haven competitor.

TD Securities said that a slowdown in the greenback's rally and a wrap-up of the U.S. hiking cycle will help gold prices rise back to $1,250-$1,275 before the end of the year. Capital Economics shared their bullish long-term outlook for the metal, stating that gold should thrive over the coming years due to a number of favorable factors.

These will include a fading fiscal stimulus and the possibility that the Fed will have to lower interest rates once again. Capital Economics commodities economist Simona Gambarini said that U.S. GDP growth will slow to 2.0% in 2019 and 1.3% in 2020, reintroducing the weakness in the dollar seen throughout 2017. Gambarini said that her firm sees gold reaching $1,350 an ounce by end-2019 and $1,400 by end-2020, adding that the metal will outperform the euro as it moves back up.