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.

The Drivers Helping Gold Stay Above its Six-Year High

There's more than meets the eye when it comes to gold's recent performance.

Last Wednesday, the Federal Reserve met market expectations by cutting interest rates for the first time since 2008. The 25-basis-point cut was priced in for much of July after the Fed shifted its monetary policy and, while definitely supportive of gold prices, did little to change the metal's upwards trajectory. Gold is still hovering near six-year highs, having ended the last trading session at $1,443 an ounce.

Although Fed Chair Jerome Powell left open the possibility of more rate cuts later this year to support the economy, an article on Newsmax reports that there are many other drivers pushing gold towards its third straight month of gains.

The metal's haven appeal has taken center stage amid widespread concerns over global growth and fears over a possible recession. According to a gauge by the Fed Bank of New York, the risk of a U.S. recession happening in the next 12 months is at its highest since 2008. The International Monetary Fund (IMF) once again reduced its growth outlook, already the lowest since the financial crisis, and added that things are unlikely to change in 2020.

Various global economies are playing their part in the IMF's grim outlook as each suffers its own industrial slowdown. Singapore, which boasted a prosperous economy not too long ago, now faces the risk of a recession as its exports fade. Shrinking factory output in countries like Germany and France also points to weaker growth in Europe in the near future, backed by the European Central Bank's own slashing of the growth forecast. China's economy has also found itself on shaky grounds due to increased pressure on its exporters.

Lakshman Achuthan, co-founder of the Economic Cycle Research Institute, recently told Bloomberg that countries worldwide are in the midst of a cyclical downturn in industrial growth. Achuthan expects this downturn to continue, adding that Powell had previously alluded to deeper problems holding the global economy back.

Besides recessionary concerns, gold has received plenty of support from wary buyers as a new crisis appears to flare up on a weekly basis states Newsmax. The long-standing trade dispute between the U.S. and China is now looking to envelop several other nations as well. Brexit remains an issue to be resolved three years after its vote was passed, and tensions in Hong Kong and over the Strait of Hormuz have also given investors pause.

James Steel, chief precious metals analyst at HSBC Securities, said that investors are turning to gold due to its liquidity and independence from any government, particularly during a time of mounting global debt and less appealing bond choices. Large speculators are once again bullish on gold's long-term outlook, having recently boosted their positions to their highest since September 2017. In a post published last month, billionaire investor and founder of Bridgewater Associates Ray Dalio spoke about a global economic paradigm shift that will include depreciating currencies and international conflict. Dalio added that gold and other precious metals will continue being outperformers in this new environment.

Gold Price to Push Higher Between 2nd and 3rd Quarter

Orchid Research believes recession fears will help gold's price trend continue.

In their latest analysis, precious metals firm Orchid Research went over some of the reasons that should push gold even higher between the second and third quarters. According to an article on Kitco, despite summer traditionally being gold's weakest period, the metal has seen tremendous price action over the past few weeks and continues to hold steady above the $1,400 level.

Most agree that the major inflows in gold stem from increasing fears over the global economy's state, as well as the Federal Reserve's policies. Orchid's analysts think we're in for a continuation of this trend over the next few months, as fears over a potential crisis persist.

According to Kitco, the report points out that gold has managed to hold strongly and move around six-year highs even against a robust dollar, illustrating the amount of appetite for safe-haven assets among investors. The analysts said that recession fears could very well drive gold prices even higher moving forward, especially in the face of the Fed's recent policy decision.

Nearly every tightening cycle in the U.S. has ended in a recession, and the Federal Reserve has been on a rate-hiking tear since 2015. However, Kitco reports that the force of their recent U-turn suggests that a likely upcoming recession could be more impactful than previous ones. Far from merely ending their hiking schedule, Fed officials immediately suggested that a lengthy period of rate cutting could be on the way.

This, according to Kitco, reinforced the view that U.S. growth is slowing down and that the era of optimistic investment is drawing to a close. President Trump's push for a more dovish Fed board, which include ample rate cuts and a potentially weaker greenback, only served to strengthen this notion.

The Fed's Treasury spreads model alone has steadily upped the chances of a recession occurring in the U.S., moving them from 29% in May to 33% in June. Many analysts are far more pessimistic when taking other factors into account and believe that a U.S. recession this year is a near-certainty.

Besides a fear-inducing growth slowdown, Orchid said that gold will keep benefiting from central banks' ceaseless increases in bullion purchases. Last year, the official sector blew away all forecasts by buying over 650 tons of physical gold combined. A major point of this development has been the re-entry of several countries whose central bankers have shown little interest in bullion over the previous decade. Orchid noted that the past few months have seen steady buying from nearly every emerging-market country, supporting the notion that central bank gold demand is ramping up heavily. China has recently served as the premier example of this, as the PBOC made a loud return to the gold market with 74 tons of gold bought in the first five months of 2019. In June, China's central bank showed no signs of slowing down by adding another 10.3 tons of gold to its reserves.

Orchid also noted that, at current prices, silver offers tremendous value to potential investors. Relative to gold, the metal currently sits at its cheapest point since 1992, providing a very interesting alternative proposition during a time of geopolitical and economic uncertainty.

Gold Fever Spreading as Prices Breach $1,400

FXEmpire's Stephen Innes lays out why gold is the asset to keep your eyes on.

Last week, FXEmpire's Stephen Innes commented in a Yahoo article on gold's rapid upswing, in which the metal went over $1,350 after weeks of lingering below the $1,300 level. At the time of publication, the metal had just touched the $1,350 mark before moving lower. Innes was adamant that we were seeing the beginning of a shift towards safe-haven assets amid mounting risks and threats to the global economy.

Since then, Yahoo reports gold has blazed past $1,400 within a week's time and reach $1,411 on Friday, the highest level in almost six years. The move stunned even optimistic forecasters who expected the level to be reached later in the year, as summer traditionally tends to be a tepid month for gold prices. The action solidified Innes' view that a veritable gold fever is on the horizon, as all the pieces appear to be falling into place.

Perhaps the most remarkable thing about gold's breakout, states the article, is that it happened during a time of a robust greenback and U.S. equities. As Innes noted, both were holding firmly as gold surged to the $1,350 level, hinting that the price action is being driven by pure investor appetite.

Innes also points out that gold is currently supported by various favorable factors, such as lower U.S. rates and dovish looks from Fed officials. According to Innes, however, the real driver of the gold rush comes in the form of fear over geopolitical risks.

The recent heating of tensions between the U.S. and Iran over the drone shootdown in the Strait of Hormuz represents a red-flag that some traders might be overlooking, but Innes isn't. Having traded gold for decades, Innes knows full well how the threat of military conflict can escalate safe-haven demand even during times of prospering economies.

The latter part has looked especially questionable as of late, as the escalating U.S.-China trade war has the global markets more  worried than they have been in a long time. The tariff conflict comes during a time of both domestic and global growth slowdown, as well as a reasonably high consensus among analysts that a U.S. recession is around the corner. Investors are also anxiously awaiting the upcoming G20 summit, as it could signal more bad news for risk assets.

Innes has long maintained that gold is a must-have inclusion to any portfolio, adding that the rapid break above the $1,350 level should be sufficient to awake dormant investors and allow them to reach the same conclusion. Interestingly enough, central bankers have been the most consistent gold bulls, as the official sector continues to load up on bullion at a record pace and irrespective of any market fluctuations. According to Yahoo, China's purchase of 16 tons of bullion is only the most recent example of how central banks will continue to act as the strongest pillar of gold demand.

Given his previous prediction that gold will jump to $1,400 an ounce in 2019 from the $1,200 levels in late 2018, it should be interesting to see how far gold can go from this point, as Innes shows exhilaration for the metal's prospects going into 2020.

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.