Experts agree that gold is heating up and silver could catch up.
As gold was hovering around the $1,420 level earlier this month, some analysts pegged $1,443 an ounce as the next key resistance level for gold to break through on its bull run. But for Forbes contributor Frank Holmes, gold’s recent jump past $1,450 an ounce tells him that $1,500 is the next level that investors should prepare for, and that it may come sooner rather than later.
Like many, Holmes is acutely aware that central bank policies, in particular those of the Federal Reserve, have played a major role in gold’s breakout above six-year highs. According to the Forbes article, a mere hint that an interest rate cut could happen this month made by Federal Reserve Bank of New York President John Williams caused gold’s price to immediately jump 2%, leading to the first daily close above $1,440 since May 2013.
All eyes have been monitoring Fed officials and their actions since the central bank made a sudden U-turn some months back, signaling an end to their tightening schedule and potentially heralding an era of quantitative easing. The article notes that other central banks, in particular the European Central Bank (ECB), had similar dovish showings by both slashing their growth forecasts and suggesting rate cuts of their own.
Having broken out of a five-year trading range, Holmes believes that great things are in store for the yellow metal. According to the article, other pundits share his view that central bankers will continue to play a key role in gold’s run. A recent note published by analysts at research firm Alpine Macro stated that the Fed’s actions are setting the stage for a multi-year bear market in the dollar, which has thus far acted as one of the main headwinds for the yellow metal. Besides a weaker greenback, Alpine Macro’s analysts listed loose Fed policies and geopolitical risks as two additional ingredients necessary for a spectacular gold bull run, and both of those appear to be in ample supply. As the dollar pulls back, the firm expects gold to reach all-time highs in the next few years.
The World Gold Council likewise pointed out that lower interest rates will increase the investment appeal of gold, adding that gold’s returns become especially prominent in an environment of negative real rates, like the one that is likely to occur later this year. The Canadian Imperial Bank of Commerce (CIBC) underlined the importance of negative real rates, saying that this was the primary driving factor during gold’s last two bull cycles. When real rates delved into negative territory in the 1970s, gold’s price jumped by more than 320%, while the negative trickle during the 2000s caused gold’s price to move up roughly 400%.
Holmes also quoted Ray Dalio, a billionaire investor and longtime gold bug who recently reiterated that the global market is on the verge of a paradigm shift due to the unsustainability of loose central bank policies. Dalio had noted that most investors are underweight on gold and would do well to prepare for this shift by bolstering their portfolio with the metal.
Besides gold’s advances, Holmes was also enthused to see that silver prices are finally catching up. After much talk over how silver is historically undervalued compared to gold, the metal recently posted six straight days of gains, culminating in a 52-week price high.