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.

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.

Managing Director at Crossborder Capital Calls Gold Best Safe Asset

A wealth management firm says short-term dips in gold prices are a buying opportunity as gold is bound to go higher over the longer term.

According to one wealth management firm in a recent Kitco article, short-term dips in gold prices represent a buying opportunity as the metal is bound to go higher over the longer term.

Talking to Kitco, Michael Howell, managing director at Crossborder Capital, said that the prices of safe assets are wrong, especially Treasuries. Although his firm expects bond yields to rise to 3.5% by year's end, higher Treasuries could uncharacteristically support gold prices because of the mechanism driving yields up.

He notes the optimistic tone of Fed Chair Jerome Powell in his recent speech suggested further tightening of the monetary policy and potentially four rate hikes this year. While this is generally seen as negative for gold, Howell says the metal will instead benefit from exaggerated bond valuations.

Howell explained that, with the supply of Treasuries increasingly outstripping demand, their gains have to be inflated to attract investors. This has brought on overpriced bonds, a situation that will worsen should the Fed roll in another year of successive rate hikes.

"The appetite for government debt is dropping off pretty fast, so you have to have higher yields to make it more attractive," said Howell regarding the worrying fundamental picture of Treasuries. "We see a repricing of safe assets and gold remains the best, cheapest asset."

The article also reports on the dollar, which, despite its prolonged plunge, one that recently saw the currency test multi-year lows, Howell believes that the greenback remains overvalued. Because of this, Howell's firm sees further losses in the dollar as a certainty. This prediction is especially bullish for gold, as the metal has a strong inverse correlation with the reserve currency and soars in times of a weaker dollar.

Howell believes the source of the dollar's weakness comes from a loss of influence in the global market. Examples of this include the Chinese yuan, which is already competing with the U.S. dollar for a prominent spot as a transaction currency in Asia. The growth of the euro as a funding currency acts as yet another threat to the dollar's status with foreign investors reports the article.

With expectations of a reversal in bond yields and more bearishness in the dollar, Crossborder Capital says that the entire financial background is positive for gold. The firm has been advising investors to stock up on the metal during weaker periods because it will go higher in 18 months.

"Strategically, we think we are at a tipping point. It's just a question of how quickly things shift," said Howell.