How Gold Prices Could React to a Recession in 2020

Capital Economics sees mounting risks leading to a recession in less than 2 years

recession in 2020 okay for gold

In their latest report on the U.S. economic outlook, research firm Capital Economics said that we may be less than two years away from a recession. According to an article on Kitco, the firm’s analysts are among the voices warning that the Fed’s ongoing tightening cycle could have disastrous consequences for the economy.

Before the markets start winding down, the economists predict a continued uptrend in GDP growth, rounding up to a 2.9% average for the year. But, as the stimulus subsides and the cumulative hikes begin to take their toll, the article states that growth rates should reverse and slump to 2.0% in 2019 and 1.3% in 2020. By this point, the nation will have found itself immersed in a new recession.

As a response, the Fed will have to abandon their current policy and cut interest rates in yet another revival of monetary easing, said the team. Previously, other analysts have pointed to the dismal statistic regarding the Fed’s previous tightening schedules, since nearly all of them culminated in a recession.

According to the article, in such an environment of wealth erosion and general hardship, gold would once again establish its role as a peerless store of value. Capital Economics researchers see other headwinds that could expedite the U.S. economic slowdown while boosting gold, such as a potential collapse of NAFTA or the introduction of more tariffs.

The analysts were critical of the trade standoff between the U.S. and several other countries, going as far as to call it the biggest recessionary threat. In the report, Capital Economics explained how the involved countries continue to provoke one another and that retaliatory responses will eventually lead to a full stoppage of exports.

Capital Economics also dismissed the recent string of promising economic data, stating that this year’s robust growth numbers are a short-term fixture that rests on rocky foundations. The article writes that the Fed already confirmed it would raise rates a total of four times this year, an announcement that Capital Economics’ team views as overly optimistic. Steep rates will pour over into high borrowing costs just as the recent tax cuts lose steam, halting growth and undoing the Fed’s work.

Given the mounting risk, Capital Economics expects gold to finish the year on a strong note by averaging $1,300 an ounce. From there, the yellow metal is expected to proceed to have an exceptional 2019 with an average price of $1,350. As the Fed adapts to the recession by slicing rates in 2020 and beyond, Capital Economics predicts that gold will go on to reach $1,400 an ounce.

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World Gold Council Predicts Gold Market to Remain Healthy

In the next 30 years, John Reade expects gold to remain upheld for the most part

gold to rise over 30 years

According to a recent analysis by the World Gold Council, gold should stay secure in its role as a sound investment for the next 30 years, reports Kitco. While the market has ample potential for significant returns in the short-term, many buyers find themselves more concerned with a longer outlook, one that involves planning several years down the line.

While some of the most devoted gold bugs would hesitate to look into the metal’s future as far as three decades from now, WGC’s head of market research John Reade and his team did just that. And as a result, their analysis showed that no other asset will hold its ground as well as gold over the upcoming stretch.

In the period leading up to 2048, the article states that Reade expects the global market structure to remain upheld for the most part, with gold as a prominent part of it. As decades pass, the metal will reaffirm itself as the premium portfolio diversificator by continuing to offer investors a sensible way of hedging their bets.

Reade lists advancements in the field of gold trade as a primary source of demand moving forward. In particular, the analyst is bullish on 21st-century developments in the gold market, which include the creation of several gold-buying platforms. According to the article, a notable feature shared by these platforms is that they are fully backed by physical gold, suggesting that even the most digitalized investors still prefer to pour their money into something tangible.

Reade also mentioned that apps built for gold storage are predictably growing in popularity, given that they allow people in less developed regions to safely store and access gold with a few clicks.

Despite this digital revolution, Reade noted that the pure physical gold market will remain as strong as ever. China and India’s economic boom will play a large role in this, as the two gold-hungry nations should continue setting demand statistics moving forward.

According to the article, the analyst finds China’s economic developments particularly noteworthy and believes the Asian nation stands a chance of surpassing the U.S. However, he ultimately feels that a lack of transparency will subdue the yuan’s chances of becoming a reserve currency and expects the dollar to maintain its position.

As with any market, gold is likely to experience its ups and downs over the next 30 years. But Reade feels that the ever-diminishing mine supply is a major clue in regards to gold’s future movements and predicts this factor will exert enough influence on market sentiment.

“I don’t think people will be disappointed in the gold market 30 years from now,” Reade explained. “You [can’t] take something that has 6,000 years of value and replace it with something new.”

Gold Headed to $1,450 Despite Rising Dollar

Bank of America strategist says a stronger dollar won’t be a hurdle for gold much longer

gold headed to $1450 despite rising dollar

Despite the recent recovery in the dollar, a Bank of America Merrill Lynch strategist sees gold capturing multi-year highs in the near term, reports Kitco. After a steady downtrend which bottomed around the turn of the year, the article writes that the greenback has seemingly recovered some of its luster in recent weeks.

Yet BAML technical strategist Paul Ciana doesn’t believe a stronger dollar will be a hurdle for gold much longer. According to the article, Ciana sees the $1,350-1,375 range as a key resistance level for gold to overcome, and he expects the metal to do that sometime later this year.

Last month, gold came close to breaching this level as it briefly traded at $1,369 an ounce before settling lower. In a recent interview, Ciana explained why the breakout has been years in the making and why he thinks it’s just a matter of time before gold moves to the next stage.

“Gold prices have been forming a six-year long base,” he said. “In the technical world we like to say, the bigger the base, the higher in space. That’s what gold is doing.”

Once gold passes $1,375, Ciana expects the metal to breeze ahead to $1,450 an ounce, a level he says is reachable before the end of the year. Should his prediction come true, gold will climb to its highest point since May 2013.

The article states that an important driver of the breakout will be gold’s ability to travel upwards alongside the dollar. Traditionally, the greenback is known to have a strong inverse correlation with the metal, and gold has posted some of its best performances during times of a weaker dollar.

Ciana said that the two assets will temporarily abandon this relationship to go higher independent of each other. This will be made possible, said the strategist, by the current conditions of the U.S. economy, more specifically the Fed’s monetary policy.

“When U.S. financial conditions are tightening, like they are today, compared to 2015, very early 2015, gold prices actually rallied about 12% and the dollar index had rallied about 6 percent,” he said. “There are situations where they both can move in tandem for a short period of time.”

Ciana doesn’t expect this to last, however, as he sees the rally in the dollar as a temporary relief. Before long, the greenback should correct from current levels and continue along the path it treaded for much of 2017. When this happens, Ciana says the standard correlation will be restored and gold will continue trending up.

Spotlight Group Strategist Claims Gold has Plenty of Room to Run

A buildup of factors in the economy could lead to gold becoming the most desirable asset

gold_notinabubble_2

After getting a boost from trade-related tensions between the U.S. and China, one strategist says that gold has plenty of room to run due to other favorable factors. In an article on Kitco, this strategist says these include a buildup of U.S. debt and an aggressive fiscal policy by the Fed that could backfire and worsen the nation’s economic outlook.

Macroeconomic strategist and managing partner at Spotlight Group Stephen Pope outlined to Kitco how the landscape is shifting towards one that favors gold. The most conspicuous among the metal’s tailwinds is the expanding U.S. debt, which currently sits above $21 trillion.

According to the article, analysts have expressed concerns that the explosion of sovereign debt could soon become unmanageable, and Pope believes these warnings are a good omen for gold. The strong correlation between the yellow metal and U.S. debt will become even more significant as the country’s governing officials continue to borrow money.

Pope notes that, despite pressure to cut back on outstanding debt, the government finds itself in greater need of funds with each passing year. Thus far, the Department of Treasury exercised its power to raise the debt ceiling as needed, yet Pope warns that this quick fix can only take the nation’s economy so far.

With the U.S. Treasury announcing that it plans to borrow an additional $1 trillion this year, Pope wonders whether officials truly have a debt limit in mind. As the Federal Reserve winds down their QE program, the Treasury could find itself forced to increase yields exponentially in order to placate creditors.

Besides the looming threat of a default that goes along with such extraordinary debt levels, Pope expects gold to also benefit from the Fed’s agenda. Officials have shown little inclination towards a measured approach this year, with markets agreeing that three to four rate hikes this year can be expected.

Yet the ongoing tightening of monetary policy could soon claim its first victims, says Pope, as risk assets become less appealing with each successive hike. While this will serve to buoy gold as safe-haven assets become more attractive, Pope believes the Fed’s hawkish stance carries additional benefits for the metal.

Other than a government that has to pay more interest on its debt, the article states corporations and individuals will likewise be affected by a tighter borrowing environment. 2018 could see a string of corporate bankruptcies as rates go higher, which, according to Pope, could lead to a sudden spike in unemployment followed by a drop in property prices. He believes such a chain reaction would quickly lead to gold becoming the most desirable asset amid rapidly diminishing economic prospects.

Gold’s Strength Proven From Lack of Volatility

Gold emerged as the standout asset with volatility levels of under 3%

gold lacks volatility

With just a few months in, 2018 has already seen unprecedented levels of volatility that caught many investors off-guard. According to a recent article on Kitco, February saw the VIX volatility gauge record its biggest single-day spike ever, with data going back several decades.

The jump came as an even bigger shock says author Anna Golubova since it followed a period of record low volatility, which paired with the stock market’s performance to lull the markets into a false sense of security. The sudden shift in volatility plunged the stock market index after a lengthy absence of turmoil, as the Dow likewise experienced its worst single-day decline ever.

These movements were accompanied by a predictable return of fear to the markets writes Golubova, with investors wondering whether the swings signaled a coming correction of the stock market. Although this remains a point of debate, one investment firm says that the VIX spike represented a correction of its own.

The article notes that Sprott Asset Management stated in their report that February was nothing short of a volatility bubble bursting. In the months leading up to the spike, multiple analysts cautioned that record-low volatility was anomalous and unlikely to become a permanent fixture.

As the VIX index continued to inflate, various asset classes, ranging from equities to bonds and currencies, experienced wild volatility swings of up to 235%. But according to the article, gold bullion emerged as the standout asset during this storm of unpredictability, having held onto its volatility levels of under 3%. Sprott’s portfolio manager Shree Kargutkar notes that this is particularly impressive since no other asset managed to provide anywhere near as much safety during one of the shakiest periods in recent memory.

To Kargutkar, there is little doubt that February’s events signal a long-overdue return to higher volatility levels. He believes as the markets settle in the new status quo, gold will remain the ideal asset to own as last month’s spike exemplified its resilience against the kind of turbulence that engulfs every other asset.

With historically-low volatility behind us, Kargutkar says investors should waste no time acclimatizing to the new environment. While his firm has advocated an allocation to gold even during calmer periods, the manager feels that now is the optimal time for an investment strategy that minimizes risk through sensible hedging.

Aside from market volatility, Kargutkar added a declining dollar and inflationary pressures to the list of tailwinds for the metal, stating that the recent capital flow into bullion shows that interest in gold is rising.

Gold Could See $1,500 by Year End

Incrementum AG Fund Manager states why gold could soon jump to new heights

Incrementum AG Fund Manager Says Gold Could Reach $1,500

Despite the dollar’s moderate recovery over the last few days, an article on Kitco reports one fund manager maintains gold will be the standout asset in 2018.

Ronald-Peter Stoeferle, fund manager at Incrementum AG, told Kitco News that gold could jump to new heights before the end of the year. He says the main driver of this rally would be stagflation – an environment where rising inflation and slow economic growth combine.

To Stoeferle, there is little question that gold is currently at the start of a bull market. The publisher of the annual In Gold We Trust report said that the metal remains attractive to investors and could see an explosion in price as volatility rises.

The U.S. economy has been touted as strong across the board, but Stoeferle warns that the praise is overblown. Like many other analysts, he believes that the dormant inflation has lulled officials into a false sense of security, and that a major spike in inflation is around the corner.

This will be made worse, said Stoeferle, by inflationary pressures from increased infrastructure spending and the passage of unprecedented tax cuts in the U.S. The analyst believes the same warning holds true for global economies, stating that countries around the world could find themselves caught unprepared by inflation and a subsequent slowdown in economic growth.

When this happens, he believes gold will once again emerge as the most sought-after asset, as it’s widely considered the ultimate hedge against inflation.

Stoeferle was also critical of the dollar and dismissed its recent short-term recovery. The article reports that, although the greenback’s bounce gave some traders confidence, it nevertheless continues to simmer in the territory of multi-year lows. Before its recent pushback, the dollar found itself in a downwards spiral that started in December and poured over into the new year, where it hit a three-year low.

The money manager sees U.S. debt as yet another strong tailwind for gold prices. While the U.S. economy still hasn’t felt the consequences of this ever-expanding deficit, Stoeferle believes the time is coming.

Finding a plunge into a recession unavoidable, Stoeferle said that an even weaker dollar will be one of the hallmarks of this descent. Regardless of where it comes from, dollar weakness is going to help gold eclipse bond yields, which Stoeferle believes are close to running their course.

With all of this in mind, Stoeferle thinks that gold could easily see $1,500 an ounce by year’s end, amounting to an increase of around 13% over current prices.

Weak Dollar Could be the Key to $1,400

 

Bloomberg author says weakness in the dollar could push gold to $1,400 an ounce

gold recession-2

Gold’s performance in recent weeks has seen the metal surpass the 2017 high of $1,359 an ounce and make a strong run towards $1,400. To Bloomberg’s Marcus Ashworth, the most important factor to look out for as the metal approaches this key level is continued weakness in the dollar.

The greenback has been on a steady decline for over a year, with a notable downwards spike in December that saw the dollar index reach its lowest level since 2013. The general sentiment is that the dollar will continue trending down, a notion backed by stances from both U.S. officials and the President.

Ashworth writes that after a long-standing tradition of U.S. financial figures supporting a strong dollar, Treasury Secretary Steven Mnuchin shocked some observes by welcoming a weaker greenback in his speech at the World Economic Forum in Davos. While puzzling for some, Mnuchin’s words were in line with Trump’s proclamations that the dollar is too strong, thereby hurting U.S. trade.

There is little question that a weakening dollar brings with it associations of a struggling economy, and it has, in the past, caused exactly the kind of panic that gold benefits from.

Ashworth argues that a guarantee of more weakness in the dollar is tantamount to a guarantee that gold will continue climbing. Another source of worry for investors noted in the article is the cryptocurrency market, which recently saw an unprecedented drop across the board, with all of the top 50 cryptocurrencies experiencing losses.

Although this is certainly beneficial for the yellow metal, Ashworth contends that dollar weakness could be the deciding factor behind gold breaking past $1,400 an ounce. A decisive move beyond this resistance could signal a return to levels last seen during the 2010-2013 sovereign debt crisis. Once there, participants will need to turn their attention towards inflation in order to gauge gold’s standing.

Inflation has been subdued in recent times, with the index moving backwards and away from the Fed’s targeted rate. This strengthened inflation concerns, and multiple analysts warn that the Fed will find itself caught unprepared by a rapidly-rising inflation rate states the article. The movement in the dollar strongly suggests this, as plunges in the greenback go along with a spike in inflation.

It’s not clear when inflation will finally rear its head, but signs point to it happening sooner rather than later. Together with a near guarantee that the dollar index will continue sliding, these two factors could be everything gold needs to test new highs in a continuation of its stellar performance.