Fund Manager Sees Prolonged Bull Market In Gold

Gold to emerge as a reliable asset and source of relief amid growing chaos.

gold a reliable asset

In a recent interview with Kitco, Incrementum AG’s fund manager Ronald-Peter Stoeferle spoke about what he views as a steady erosion of trust from all corners. Stoeferle, who was previously named Incrementum’s most accurate quarterly forecaster, thinks the stars are aligning for a prolonged bull market in gold, despite tepid summer price action.

The author of the annual In Gold We Trust report noted that a general lack of trust is becoming a common theme among both investors and the average citizen. Stoeferle said that people are beginning to doubt the veracity of the media, the prudence of geopolitical alliances and current monetary policies, and even democracy itself.

According to Kitco, in such an era, gold is bound to emerge as the one reliable asset and source of relief amid growing chaos. Stoeferle thinks that movement in the stock market perfectly illustrates the aforementioned point, as the fourth quarter of 2018 saw both small- and large-cap stocks drop by double-digit percentages. Meanwhile, gold gained more than 8% and rounded up the year as a top performer.

The Q4 performance of U.S. stocks marked the first instance that the S&P 500 Index has looked truly vulnerable in a long time. Regarding the dollar, Stoeferle noted that investors are both overly confident in it and skittish to make an extended commitment.

The first point has to do with the well-known debt issue, which has risen dramatically in the U.S. and the rest of the world. Yet Stoeferle finds the domestic debt situation especially troubling, stating that U.S. debt right now exceeds that of Japan and the entire eurozone combined. It’s a massive jump from 2011 levels when the U.S. had similar debt levels to Japan, and Stoeferle is critical of investors who misinterpret the underlying themes in the U.S. economy.

Conversely, Stoeferle pointed out that there has been a relatively tempered amount of interest in the U.S. dollar given geopolitical developments. Although the greenback still holds strong, logic dictates that various issues surrounding the eurozone should bring far more positive attention to the U.S. dollar than they have so far.

Stoeferle also touched upon the subject of an upcoming recession, which most analysts agree is a virtual certainty. However, Stoeferle doesn’t share the view of some economists that the next recession is three or more years away. He notes that the Federal Reserve’s own indicators point to a 28% chance of a recession happening in 2020. Over the last 30 years, such a high figure invariably resulted in a crisis within two months of being made official.

According to Kitco, the case for gold becomes even stronger when Stoeferle reminds investors that the metal has been gaining in nearly every other major currency. The analyst thinks it’s a simple matter of a sentiment shift in the U.S. market that will usher in a lengthy bull market for gold. Stoeferle added that $1,360 is the level that investors should keep an eye on, as the gold market will likely see heavy buying after this resistance is breached.

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Trade War Conflict a Bullish Development for Gold

One market analyst says markets are expecting any news that more tariffs will be imposed, boosting gold prices.

trade war conflict good for gold

Ever since trade talks between the U.S. and China got heated, the conflict has frequently been cited as a very bullish development for gold. Given both countries’ presence on the global market, signs that either will radically alter their import and export policies could plunge the world economy into turmoil. An article on Kitco writes that, despite this, most analysts agree that gold hasn’t truly reaped the benefit from higher tensions in the form of haven inflows thus far.

Yet the aftermath of Friday’s no-deal trade talk session between U.S. and China representatives in Washington saw gold climb while equities came under selling pressure. News that the two economic superpowers would try to reach an agreement were met with optimism that has, for the most part, waned. According to Kitco’s senior technical analyst Jim Wyckoff, consensus opinion has moved to expectations that the U.S. and China won’t be able to reach agreeable terms.

This has already resulted in taxation of some $200 billion worth of Chinese goods in a move that drew threats of retaliation from Beijing. On Friday, President Trump seemed content to impose additional tariffs on the remaining $325 billion of Chinese exports still unaffected by new levies.

Wyckoff thinks there is little question in regards to whether the trade standoff is escalating. The analyst noted that neither country has shown any intention of backing down, with leaders on both sides continuing to threaten with sanctions.

As positive as a trade war could be for gold, Kitco reports that Capital Economics markets economist Simona Gambarini said the real focus should stay on stagnating economic conditions in the U.S. Gambarini and her firm predict a plunge in stocks and other risk-on assets throughout 2019, stating that investors will soon lose their appetite for equities due to a global growth pullback. With Treasuries rapidly losing their appeal, Gambarini added that gold and the Japanese yen will emerge as the only viable haven options.

A back-and-forth with China will certainly complicate the domestic economy and possibly expedite the slowdown, which plays into Gambarini’s warnings. FXTM market analyst Han Tan said that gold has plenty of potential to breach $1,290 soon as a continuation of the U.S.-China trade conflict seems all but assured. Tan noted that the markets are cautiously expecting any news that more tariffs will be imposed on China, and that these would translate to an immediate boost to gold prices.

Meanwhile, Kitco reports that Gambarini’s year-end forecast has gold reaching $1,400 on the back of numerous favorable factors.

Gold’s Performance Puts it at Second-Best Asset Since 1999

According to data by JPMorgan, gold had an average annual return of 7.7%.

gold second best asset

In a recent analysis on Seeking Alpha, publisher and money manager Frank Holmes outlined why gold has been the second-best performing asset since 1999. Holmes has previously talked about gold’s outperformance over different time stretches, yet he finds the metal’s long-term reliability of particular importance as global physical demand intensifies.

For the 20-year period ending on December 31, 2018, gold posted an average annual return of 7.7% as per JPMorgan’s data. This places the metal second only to real estate investment trusts (REITs) in terms of performance. In that time, gold has beaten crude oil, real estate and all types of bonds. The latter are generally seen as the primary safe-haven alternative to gold.

Then there’s gold’s performance compared to the S&P 500 Index, which came in with a return of 5.6% during the same period. This questions the view that gold merely acts as a store of wealth whereas stocks provide flashy returns. The performance recap against equities is even more impressive as the stock market is reaching the end of a historic, decade-long bull run. Holmes also points out that the average investor, one who is presumably low in gold weighting, saw a return of a mere 1.9% during the stretch.

According to the Seeking Alpha article, one investor who’s reaping the benefits of investing in gold is Ray Dalio, the billionaire founder of Bridgewater Associates, the world’s largest and most successful hedge fund. Besides being a major personal holder of bullion, the article states Dalio also bases much of his firm’s strategy around the yellow metal. Bridgewater’s SEC filing for Q4 2018 revealed that Dalio has spaced out investors’ money across all corners of the gold market.

Another group of investors intimately familiar with gold’s utility are central banks. According to the article, although global central bankers have been net buyers of bullion since 2010, they have recently upped their purchases in a head-turning manner. China’s gold purchases amid attempts to broker a satisfactory trade deal with the U.S. have been making the headlines in recent weeks, as the Asian nation brought its official gold holdings to 1,885 tons in March. The figure came after four consecutive months of heavy physical buying that put China on track to beat Russia’s own purchases by the end of 2019. For reference, Russia bought a total of 274 tons of bullion last year.

Other central bankers have shown a similar inclination in recent months reports the article, with governments around the world purchasing a combined 51 tons of bullion in February, the largest monthly increase since October 2018. It will no doubt be interesting to see how this translates to gold’s price movement in the coming months. For longer-term oriented investors, however, news that central bank bullion demand has soared to a 50-year high is likely of greater importance.

Fed’s Policy U-Turn a Positive Development for Gold

Similar U-turns in the past have resulted in significant increases in gold prices.

fed u-turn bullish for gold

Not long ago, some were forecasting that the Federal Reserve would raise interest rates up to four times this year. After all, the central bank had been on a hawkish run since 2015, sticking to a schedule that involved a minimum of three hikes per year.

Towards the end of 2018, the forecast was downgraded to an expected two hikes for this year. But after last week, it appears that the Fed might not budge interest rates at all in 2019. Fed officials hinted at this during last week’s meeting, in what was perhaps the biggest display of dovishness since the tightening schedule started. According to an article from Kitco, this is a highly positive development for gold prices.

Despite the metal’s time-proven ability to perform well even amid successive hikes, periods of monetary tightening generally push gold prices down, whether through sentiment or a strengthening of the U.S. dollar. Thus, the shift in Fed policy will remove a major headwind for an asset that has outperformed since the beginning of the year, writes Kitco.

The World Gold Council concurs, stating that similar U-turns in Fed policy in the past have resulted in significant increases in gold prices. In their latest analysis, the WGC took note of gold’s slight price dip over the last week, urging investors not to pay too much attention to it and instead focus on the bigger picture.

As the WGC pointed out, the previous two dovish shifts in Fed policy had a similar effect. According to Kitco, in 2001 the Fed’s tightening wrap-up caused gold prices to sink in the short-term, yet bounce back and post gains over the following 12 months. The same thing happened in 2007: gold went down after the Fed stopped hiking rates, only to end up nearly 20% higher within a year.

John Reade, the WGC’s chief market strategist, said that investors should take special note of this as equities become less and less attractive. In fact, Reade believes that we are witnessing the end of a decade-long recovery in the stock market, reports Kitco. This, along with gold’s historical price movement following changes in Fed policy, leads Reade to think that now is a good time for investors to increase their allocation to gold.

According to Kitco, the Fed’s policy shift and growth forecast downgrade carry deeper implications than the minutes from the meetings suggest. Experts have long warned that various U.S. economic data points to an imminent growth slowdown, something that Fed officials largely ignored as they chose to power through with their hawkish agenda.

Likewise, many have noted that nearly every U.S. hiking cycle in the past culminated in a recession not long after the Fed’s wrap-up. Should a crisis indeed hit the markets following the Fed’s change in policy, Kitco suggests gold’s price gains since the start of the year could mark the beginning of a long-term bullish trend.

Gold’s Recent Dip is a Temporary One Says Analyst

Precious metals analyst says there are too many favorable factors for gold not to flourish.

gold's dip temporary

Eyes were on the $1,300 level as gold began climbing around the start of 2019, as it was considered a key level of equal psychological and technical importance. Gold eventually showed that it could stay well above $1,300 an ounce as it looked ready to take on $1,350 in the weeks to come.

Meanwhile, some analysts predicted a pullback given the amount of gold’s upwards momentum. But the same analysts also said the metal would jump right back up, and that a pullback was a natural part of the metal’s chart trajectory. These predictions proved correct as gold briefly retraced.

After gold went below $1,300 an ounce, Metal Bulletin precious metal analyst Boris Mikanikrezai shared his thoughts on why the gold market is merely seeing a slight churning of the waters. In his Wednesday post on Seeking Alpha, Mikanikrezai noted that gold indeed faces plenty of selling pressure after the metal’s explosive rally.

Like many others, Mikanikrezai predicted that the dip below $1,300 would be a temporary one, urging gold investors not to worry about any pullback in the near-term, according to a recent Kitco article. It didn’t take long for Mikanikrezai’s words to materialize, as gold has trended steadily up since then. The metal briefly touched $1,300 once again and will now aim for a better foothold above the level, reports Kitco.

This mission seems easy enough to Mikanikrezai, as the analyst noted that there are simply too many favorable factors for gold not to flourish. As predicted in his post, investors appear to have picked up right where they left off in this year’s increasingly risk-averse climate.

Out of the various tailwinds propelling gold to new heights, Mikanikrezai singled out equity volatility as a determining one. During its historic run, the equity market was seen as the gold markets’ biggest competitor as it lured investors in with the promise of quick and easy returns, writes Kitco. But the decades-long period of “easy money” in U.S. equities appears to have ended and a couple of flash corrections left stock traders wondering what’s next.

While some insist that the crashes aren’t alarming, others warn that they are a herald of another recession. Although the latter scenario would certainly benefit gold, Kitco reports the metal has already reaped the rewards from a wobbly stock market and the ensuing rush to safety. Mikanikrezai sees defensive positioning becoming a common theme throughout 2019.

Beyond that, Mikanikrezai thinks that gold’s superb demand picture will turn even better as the current U.S. business cycle is brought to a close. According to Kitco, gold’s remaining fundamentals should help speed along the metal’s recovery from its first hitch in a months-long hot streak.

Sprott CEO Says Gold is Best Currency Amid Global Debt Crisis

Gold may be only thing that could save investors’ wealth against debt issues.

gold as global currency

The warning bells were rung a few days ago as numerous outlets announced that the U.S. national debt surpassed a record $22 trillion. In the past, President Trump himself cited economists’ warnings that a debt level of $24 trillion would be a “point of no return”, with severe implications for the economy.

According to a recent Kitco article, the Congressional Budget Office’s forecast is a bit more pessimistic, as the CBO forecasts an additional $12 trillion of national debt being created between 2020 and 2029. Of course, the debt crisis is far from a U.S. phenomenon: according to recent estimates, the total global debt sits somewhere around $244 trillion, a figure three times larger than the global economy.

The article writes that there is no clear solution in sight for this, but austerity will likely be a key ingredient in any such blueprint. And according to an interview with Peter Grosskopf, CEO of Sprott, gold is the only thing that could save investors’ wealth as the debt issue becomes more prominent.

Grosskopf expects governments to soon attempt to tackle the debt issue through one of two measures: either by quantitative easing (QE), which drives inflation higher, or financial repression. While either of these scenarios could be nightmarish for long term-oriented investors, the article reports both are exactly the sort of thing that the yellow metal thrives from.

As Grosskopf explained, whatever steps governments take to address the debt issue will further debase fiat currencies, which many already find to be on shaky legs. The article writes that in this environment of depreciating fiat, investors will turn to gold not just as an investment, but also as a currency in itself. In doing so, they will invoke the classic adage that nothing except gold is money.

Grosskopf and his firm already see this happening. The CEO noted that a diverse group of people has taken an interest in owning more gold as of late. This group includes famous billionaires, large funds, smaller investment firms and even central banks, the issuers of fiat currency.

The average investor is likewise becoming more aware of the instability of fiat, states the article, and individual investors are increasing their exposure to bullion as the global economic outlook turns questionable. Grosskopf noted that various central banks around the world are planning to raise interest rates, yet believes they will be unable to do so as higher rates with record debt levels are an economic fallacy.

On the opposite end of the spectrum, an all-too-familiar turn to QE programs will prop gold even higher, as the metal has historically been viewed as the ultimate hedge against inflation. Whatever policies central banks come up with in the near future to fix the debt crisis are sure to benefit gold and establish it as a better currency than fiat itself, states the article. And to Grosskopf, the steady increase in gold weighting in investor portfolios already serves as a testament to this.

Forbes’ Contributor Sees Gold Turning Into Bull Market

Rainer Michael Preiss believes the stage for gold as the main act has been building up for months, if not years.

gold bull market

In a recent Forbes article, strategist Rainer Michael Preiss went over his reasons why 2019 might be gold’s breakout year. After staying range-bound for several years, what seems like a sudden confluence of several favorable factors could soon bring the metal to the forefront.

But Preiss believes that the stage for gold as the main act has been building up for months, if not years. For many investors, the U.S.-China trade war has been the deciding factor for going long gold. The conflict has dire implications for multiple reasons, starting with the threat of an inflationary spike.

Gold is often cited as the ultimate hedge against inflation, and for good reason. According to the article, the metal holds a strong inverse correlation with the dollar, and although it can do well in times of a robust greenback, gold posts its best performances as prices of other assets and goods rise.

Analysts have already warned that a spike in consumer goods will be the first consequence of the trade war, and gold investors have surely taken note. But the trade conflict reminds investors of another issue: China is one of the U.S.’ main creditors, which highlights the unfavorable domestic debt picture that even the hawkish Fed Chair Jerome Powell is troubled by.

Preiss reminds us that John Pierpont Morgan, the banking titan, said himself that everything but gold is credit. Those words come off as ominous as central banks around the world begin to tighten monetary policy and, in doing so, take away liquidity. According to the article, most agree that a lack of liquidity was the driving force behind the 2008 crisis, and recessionary concerns are once again the talk of the town.

Bloomberg data shows 95% of the world’s assets had negative returns in 2018. This was a consequence of central banks moving from quantitative easing (QE) to quantitative tightening (QT). Gold’s confinement to the relatively narrow trading range of the past few years has been directly tied to the loose monetary policy during that time.

Those who weren’t driven to gold by the trade war or rising debt levels likely chose to focus on the stock market’s wobbles instead, suggests the article. What was called a historic bull market just a year ago has turned bearish in the eyes of many experts. It’s no secret that the strong-performing U.S. stocks have been gold’s main competitor of late, just as the now-waning Treasuries have until recently acted as a haven alternative.

With such a backdrop, Preiss finds it entirely plausible that gold will move into a multi-year bull market sooner rather than later. And as it does, gold’s advantages over other assets and credit-driven fiat currencies will become strikingly apparent.