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.

Degussa Analysts Show Gold Has Beaten the U.S. Dollar for Nearly 50 Years

While the U.S. Dollar is subject to systemic shock, gold benefits from it.

In less than a week, gold bounced back from a lengthy tepid period to gain roughly 5%, bringing it to a three-month high. The outperformance could be seen as a victory against a persistently strong dollar, which has kept gold prices subdued over the previous months despite intensifying haven demand.

However, according to an article on Kitco, analysts at Degussa explained why gold has been beating the dollar for nearly 50 years, even during times when the greenback seemed unshakeable. Compiling data from 1970 to 2018 and focusing on gold prices in real terms by taking inflation out of the equation, Degussa's team found that gold has returned an average of 5.9% each year.

In contrast, holding U.S. dollars in a three-months old bank account would have annualized an average return of 4.6%. The results of the study largely stem from the dollar's continued loss of purchasing power, as the greenback has lost as much as 85% in that regard since 1970.

The analysis comes as investors worldwide begin to doubt the stability of supposed safe-haven currencies and the monetary systems built around them. As Degussa's analysts noted, much of the global monetary system rests on the U.S. dollar keeping its value, yet there are signs that the greenback could soon find its role compromised.

With the ongoing threat of China dumping an immense amount of U.S. bonds and a national debt of over $22 trillion, one could make the argument that the greenback hasn't looked as vulnerable in a while. Like all currencies, Kitco states the U.S. dollar is subject to systemic shocks, yet its status makes these scenarios particularly menacing. As the world's reserve currency, a rapid faltering of the U.S. dollar and the ensuing loss of confidence in it could plunge the entire global economy into chaos.

Gold, on the other hand, suffers no threat from questionable central bank policies or collapsing economies, but rather benefits from them, reports Kitco. The only cited downside to owning gold comes in the form of a perceived opportunity cost of holding it during times of higher interest rates. With the Federal Reserve's quick shift from a hawkish standpoint to one that signals concern, even this perceived downside has been eliminated.

Degussa's analysts think that the economic outlook is fairly straightforward. The steady trickle towards negative interest rates by the world's major economies will create a situation where owning bonds punishes investors instead of rewarding them. Add to this the ever-shakier haven currencies, and the analysts say people will once again be reminded that gold is the only true safe-haven asset with no clause or vulnerability.

The latter point couldn't be timelier, as most agree that the era of risk-on investment is drawing to a close. According to Kitco, U.S. stocks are about to end a decade-long bull run as growth concerns reverberate across the globe. As central banks prepare to debase currencies further through more money-printing programs, the impending move towards safety-oriented strategies could look more like a panicked rush than a steady migration.

Amid Global Economic Concerns, World Returns to Gold

Dr. Makhdoomi states when people loose faith in a government, the solution is precious metals.

Despite the outwards appearance of stability, the global economy runs on an inflationary system that confines it to an endless cycle of crashes and reboots. And, according to Greater Kashmir's Dr. Makhdoomi, the world's economic woes can be traced to the abandonment of the gold standard, albeit much earlier than the Nixon Shock in 1971.

Two and a half millennia ago, the government of Athens used a sound economic system with a set currency value based on physical gold writes Greater Kashmir. Yet wartime expenses drove the government to inflate its bullion reserves by minting coins of a lesser purity. With the addition of copper, 1,000 gold coins became 2,000 and the government had enough leeway to fund its ventures, even at the cost of currency stability.

As simple as it might seem, the very same method of funds creation is used today by governments around the world at a much larger scale. As Makhdoomi explains, any spending done by a modern government is done in the red, as no sovereign country operates without a budget deficit. When a central bank needs more money, the solution is to simply print new currency and worry about the inflationary consequences later. According to the article, the problem is exacerbated by the issuing of government bonds, which create more money out of thin air.

Makhdoomi points out that, when given enough false assurances, the people can and will lose faith in a government. When they do, he says the solution is always to rush back to precious metals as a way of preventing wealth erosion amid increasingly questionable central banking practices.

Consumers have come to equate money with currency, even though the latter has no intrinsic value and is merely a government's promise. According to the article, the price movement of gold in dollar terms is a perfect example of this, as an ounce of metal went from $40 in 1971, when President Nixon moved away from the gold standard, to over $1,200 today. The jump in value illustrates how much money has been printed since then in a baseless free-floating currency system.

Makhdoomi, however, believes today's gold prices might still be far lower than they should. Some pundits, such as monetary historian Mike Maloney, believe that an economic crash is closer than most think. When things go awry, Maloney expects gold and other precious metals to come under revaluation with a rapid price jump to $5,000 an ounce.

Both Makhdoomi and Maloney agree that the next major crash will be accompanied by a wealth transfer. Depending on whether one invested in gold or kept their faith in currencies, this could either translate to massive profits or a risk of losing everything.

Analysts Say Gold Poised to End Year on a High Note

Gold expected to do well in the last few months of the year with more upside potential in 2019. 

Having gained 3.5% over the previous week, gold seems poised to end the year on a high note after two mild quarters says CNBC. The CNBC article writes that different analysts expect the metal to do well in the last few months of the year before moving on to post a strong performance in 2019.

Jim Steel, chief precious metals analyst at HSBC, attributes gold's performance this year to an overbearing dollar which, along with higher-yielding Treasury notes, diverted some safe-haven demand away from the yellow metal. According to CNBC, Steel said gold was severely oversold below the $1,200 level, as it recently had the largest amount of shorts since 2001. He explained that dips such as these are bound to attract bullion investors, especially those in Asia.

Steel noted that bearish sentiment among speculators created an excessive short position that could ultimately act as strong support if sellers end up having to cover their bets due to higher prices.

Although a pick-up in physical demand in emerging markets played an important role in the price spike, Steel thinks the concerning equity picture is what really placed gold back into the spotlight reports the article. The S&P 500 index notched major daily losses in back-to-back weeks as investors grew increasingly worried over tensions between the U.S. and China, shaky emerging markets and economic issues brewing in the eurozone.

According to CNBC, the Fed's assurance that rate hikes would continue into the new year was another source of concern, with some feeling that the central bank is too eager to tighten. But Bart Melek, head of commodities strategy at TD Securities, believes the Fed might not follow through with its intent to raise the funds rate above 3% by the end of 2019. In particular, he says the Fed could be dissuaded from tightening by additional flare-ups in the stock market.

Melek noted that a drop in the 10-year yield from above 3.25% to 3.15% also helped gold take back safe haven demand. A loss of faith in the dollar's long-term picture could further strengthen gold's case in the near future.

The strategist sees gold holding onto its gains as the year comes to a close, expecting an average of $1,225 for this quarter. From there, Melek thinks the metal will average $1,325 an ounce by the fourth quarter of 2019.

HSBC predicts that the metal will average $1,274 an ounce this year with plenty of upside potential in 2019. Steel pointed to record volatility that the markets suffered from earlier in the year, which brought the metal to $1,360 an ounce. According to CNBC, he expects the markets to slip back into turbulence again, cementing gold's long-term position and giving way to ample short covering among speculators.

Barron's Sees Gold Staging a Comeback in the Near-Term

Despite lack of enthusiasm from large speculators, gold remains as popular as ever.

In a recent article on Barron's, columnist Andrew Bary outlined why gold could be staging a comeback in the near-term. Newsmax reported on the article and wrote that, despite the lack of enthusiasm from large speculators, gold remains as popular as ever among cautious investors and those looking to shield themselves against the dollar's depreciation.

Although it isn't making the headlines, Bary notes that global inflation is something every investor should prepare for. As GoodHaven portfolio manager Keith Trauner explains, governments around the world are dealing with an immense amount of sovereign debt. According to the Newsmax article, policy makers will always see inflation as preferable to defaults or restructuring, which is why a steady uptick in prices will continue to be the norm. Few assets can boast of having retained their value against the dollar over the past century, which makes gold the ideal hedge against a guarantee of high inflation.

Potential losses in the dollar are another source of relief for the yellow metal reports the article. Those who feel that the greenback is propped up and overbought rely on gold's strong negative correlation with it to guard against a potential pullback.

According to the article, the general consensus is that higher interest rates will continue pushing down on gold, with the federal-funds rate expected to rise by 1% between now and late-2019. Yet many forget that the inflationary 1970s, which hosted a record number of rate hikes, still rank among gold's best decades, showing that the metal can thrive in an environment of higher rates.

Gold's unyielding scarcity likewise speaks in favor of a recovery. The roughly six billion ounces of gold available today, worth at least $7 trillion, are minimally replenished year-on-year, as the total annual mining output amounts to less than 2% of the global supply. Mining efforts have been complicated by the cost-cutting closures of many mines over the past decade and a dearth of new exploration, giving weight to warnings that the supply of gold is rapidly dwindling, writes Newsmax.

Large investors with a keen eye for precious metals aren't waiting for gold prices to surge, as evidenced by John Paulson's recently-formed coalition whose goal is to breathe new life into the gold industry. Besides the billionaire fund manager himself, other prominent members of the 16-member group, called Shareholders' Gold Council, include fellow money manager John Hathaway and Egyptian billionaire Naguib Sawiris. Sawiris, who makes the list with his La Mancha Group, said in April that he invested half of his $5.7 billion net worth into gold.

Paulson's decision to unite institutional gold investors comes as large funds continue to shun gold in a gesture that many interpret as a sign of higher prices to come.

Analysts Say Win-Win Situation is Forming for Gold

Despite the dollar's recent gains, ScotiaMocatta sees gold recapturing its haven appeal.

In the latest edition of ScotiaMocatta's monthly Metal Matters report, the bank's analysts examined gold's prospects amid various geopolitical escalations. After falling for much of 2017, the U.S. dollar managed to rebound in December and has since attracted the attention of safe haven-oriented investors.

According to a recent article on Kitco, ScotiaMocatta sees gold eventually winning against the greenback and recapturing its haven appeal. A notable part of gold's tepid summer was a lack of response to risk factors that would otherwise warrant a price boost. But now, with a clear bottom forming on the chart, the analysts are certain that gold will receive its long-overdue benefits from the myriad of risks on the horizon.

Among them is a well-publicized tariff battle between the U.S. and two of its main trading partners in China and Canada reports Kitco. The Asian nation has seen over $200 billion of its exports to the U.S. incur higher levies and has pledged to retaliate in kind. Meanwhile, Canada finds itself facing a possible exclusion from the trillion dollar-worth Nafta agreement, which would greatly complicate trade with its U.S. and Mexican neighbors.

Iran has also been a source of concern, as the country saw its economy placed into question by sanctions imposed by the U.S. over nuclear disagreements. The situation will likely worsen towards the end of the year says Kitco, when further sanctions are scheduled to take place.

ScotiaMocatta also expects flare-ups in emerging markets to make an impact on gold's price, noting that the strength of the dollar has highlighted the weakness in various emerging economies. According to the article, the recent economic upheaval in Turkey has taken center stage, with the country experiencing a hyperinflation scenario similar to that of Venezuela. The presence of several European banks in Turkey raised concerns that the crisis could spread across the entire eurozone as well as complicate the region's handling of migrants. The analysts listed Argentina, South Africa, Russia, Brazil and Italy as other potential sources of risk, whether due to issues with their respective governments or those stemming from U.S. interference.

To ScotiaMocatta, this is a win-win situation for gold, as renewed safe-haven demand will be further strengthened by lower price levels. Likewise, emerging market crises could make the world's leading central banks, including the Federal Reserve, hesitate to continue applying their tightening policy writes the article.

The bank listed $1,241 an ounce as a key level to watch out for in the gold market. According to the analysts, a holdout above this threshold, coupled with any sign of weakness in the dollar, could trigger an aggressive price rebound in the metal as funds rush to cover their positions.

Incrementum AG Fund Manager Says Now is the Time to Buy Gold

Gold market has reached its lows for the year, with prices to gain traction as investors lose optimism.

According to one notable strategist, the gold market will soon see a strong shift in momentum and an accompanying spike in prices. A recent article on Kitco features Ronald-Peter Stoeferle, fund manager at Incrementum AG, and why he believes gold is headed towards an uptrend in the near term.

In the article, Stoeferle says that the gold market has already reached its lows for the year, and that prices will begin to gain traction as investors lose some of their optimism. Stoeferle added that gold's current levels make right now a good time to load up on bullion.

The money manager listed several favorable developments that will keep gold ahead in the coming months. According to the article, signs show that the recovery in the dollar is already losing steam and that investors are being less confident regarding the greenback's future. Stoeferle said that the dollar is bound to go down as the Federal Reserve rounds up its tightening cycle.

As investors come to realize that the Fed doesn't have a lot of hiking room left, the article states the dollar's rally will begin to fade. Stoeferle said that the downturn in the dollar has been a long time coming, noting that many investors were shorting the currency at the start of the year.

The fall in the dollar will coincide with another round of trade tensions and the ensuing market stress reports the article. He sees the potential threat of a trade war as a big statement in gold's favor, as the fallout could act as a major booster for the gold market. Stoeferle said that the growing global uncertainty could force the Fed to return to a looser monetary policy, which would further support the metal.

Stoeferle feels that his forecast for the dollar goes in line with key U.S. officials who have stated that a weaker dollar would be positive for trade. Even President Trump has, on several occasions, likewise called for a lower dollar in order to strengthen U.S. trade.

Although the booming stock market has been gold's greatest nemesis, the article writes that equities will end up bolstering the metal's price. Like numerous analysts, Stoeferle thinks that the record-setting equities are finally winding down. He views the trouble in emerging markets as an omen and a sign that the rest of the stock market will soon follow. The weak technical picture in the stock market is another point that gold will draw strength from.

To Stoeferle, the metal's tenacity in difficult times is the surest indicator of its ceaseless value. Even when other assets posted historic runs, gold remained competitive and avoided selloffs while waiting to make its move up.

Gold to Emerge as an Important Asset for Current Times

Despite a tame month, gold is set to remain a key part of any portfolio.

Although multiple factors converged to push gold prices lower in April, an article on Financial Express says the metal could still emerge as the year's marquee asset due to the state of the global economy.

Besides temporary relief from geopolitical tensions and a rise in bond yields, a stronger U.S. dollar was also a major contributor to a tame month for gold. After a prolonged decline that raised eyebrows with both domestic and foreign investors, the dollar index finally caught some respite and reversed its trajectory. According to the article, the greenback now sits at multi-week highs, a position largely influenced by the Federal reserve's hawkish stance.

Having left interest rates unchanged during their latest meeting, the Fed nonetheless affirmed their previous forecast for a total of three rate hikes in 2018. Officials also expressed their desire to continue with the monetary tightening for the foreseeable future should current economic conditions persist. And while successive rate hikes are generally seen as negative for gold, there are ways that the metal could reap the benefits from this aggressive policy says the article.

To some, the Fed's current course is analogue to taking away the proverbial punch bowl. Given the loose monetary policy of the last decade, a sudden shift to a more austere approach could shock the laid-back markets. Among the worst to suffer this effect could be the long-soaring stock market states the article, which recently begun to show cracks after seeming invulnerable. The Fed's goal of reducing their balance sheet by $420 billion this year and $600 billion the next could slowly introduce discord into equities. Despite tax cuts and other encouraging developments, 2018 could see investors' optimism dwindle as they wake up to the reality of a lesser money supply.

Inflation expectations could act as another source of gold's strength. The Fed is confident that it can maintain the targeted inflation rate of 2%, and much of their current agenda rests upon it. But many are quick to forget that inflation was moving in the opposite direction for some time, raising concerns that the reversal was achieved too quick. Given that the ideal 2% have already been surpassed, the Fed could find itself struggling to deal with soaring inflation. In this environment, the article says gold would quickly become a most-desired commodity.

The economic tug of war between the U.S. and China will also continue to remind investors that gold is a key part of any portfolio. Despite the seeming calmness in recent weeks, the situation is only beginning to develop, and the leaders of both countries are unlikely to back down. Global growth, industrial metals and energy will all come under attack should the threat of a trade war return.

The article states that this would harm bond yields as investors shun U.S. debt, and the rapid expansion of the latter has already placed the dollar's long-term purchasing power into question.

Regardless of short-term happenings, the ongoing lack of equilibrium in the global economy along with constant geopolitical flare-ups are sure to preserve gold's favor among risk-averse investors.

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.

Gold on Track for Best Year Since 2010

A struggling U.S. Dollar helped boost gold at end of year, acting as the metal's biggest driver.

As seen on Reuters, gold recently hit its highest level in 2 and a half months, putting it on track to its best year since 2010. The metal rebounded towards the end of the year due to a myriad of factors, most of which, according to the article, had to do with the U.S. dollar.

The greenback had a difficult year as several geopolitical events subdued it. Aside from increasing the appeal of owning gold, the article states that the U.S.-North Korea conflict also harmed the dollar, giving more ground to the yellow metal.

Persistent low inflation in the U.S. remains a significant headwind for the dollar. The article references Georgette Boele, an analyst at ABN Amro, who said that inflation concerns allowed gold to thrive even after three interest rate hikes by the Fed in 2017. The same concerns have also impacted market sentiment, letting gold hold its ground against rate hike predictions in 2018.

Boele added that the dollar remains the most important driver of gold prices, followed by yields. Aside from a dollar that didn't profit from successive rate hikes, 2017 also saw weak trade and meager yields, both of which bolstered gold. While Boele said that a recovery in the dollar could harm gold prices in 2018, it's worth noting that the issues placing pressure on the greenback are still ongoing.

As the dollar had its worst showing in three months with a potential to post its worst year since 2003, gold breached the $1,300 level to hit $1,302 an ounce this past Friday afternoon. The article notes that ScotiaMocatta's technical team pointed to $1,306, gold's October high, as the next level gold could capture before the year ends.

The analysts said that gold has benefited from technically driven momentum, adding that the metal broke its 100-day moving average in a markedly positive development. With enough strength in the closing days of 2017, gold is poised to have its best month since August.

Other precious metals also enjoyed a favorable year, with palladium's gains standing out the most. The metal recently hit $1,072, its highest level since February 2001, amid worries over availability after years of market deficit. Palladium enjoyed an unusually large premium over platinum in the fourth quarter, with the latter rising 3.8% this year.

Silver's gains were somewhat higher, having risen 6.5% so far this year, last closing at $16.97 an ounce.