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.

Hedge Funds Pile into Gold and Silver

Hedge funds almost doubled their gold net-long position in the past three weeks

gold silver 1-15-18

According to a recent article on Kitco, hedge funds are finding gold and silver appealing in the new trading year and are continuing to pour cash into the precious metal sector. A Commitments of Traders report for the week ending January 2 showed long positions in Comex gold futures rose by 40,708 contracts, bringing gold’s overall net length to 148,174 contracts. Commerzbank pointed out that hedge funds have almost doubled their net-long position in gold over the past three weeks.

Author of the article, Neils Christensen, says gold continued its gains during the survey period, rising more than 2% in that time to break through the key $1,300 level. According to analysts, the dollar’s decline played a large part in money managers’ decision to move into gold – the greenback, which recently sunk to a three-year low, continues its downhill trajectory over concerns regarding weak inflationary pressures.

The article reports that, although Trump’s tax plan finally materialized after months of speculation, market participants are doubtful that the reform will achieve the desired inflationary effect, said Bart Melek, head of commodity strategy at TD Securities. Should inflation remain, Melek believes the Federal Reserve won’t be able to proceed with its plans to hike interest rates several times this year. Lower interest rates will reduce the perceived opportunity cost of owning precious metals, making them more attractive to investors.

The picture for the U.S. dollar in the coming months remains bleak as the European Central Bank looks to apply a tighter monetary policy, which would lower the dollar’s value against the euro writes Christen. Further losses for the dollar would likely translate to prolonged upwards momentum for gold, as the metal has already enjoyed considerable gains since the start of the year.

The article also reports that despite gold’s solid performance in the opening weeks of the year, silver managed to impress even more, especially when considering the spot it was in during the closing days of 2017. Having come close to ending the year on a bearish note with hedge funds increasing their short positions, Christen says the silver market managed to rebound in the new year both in terms of sentiment and price gains.

The same report showed money-managed net short silver positions fell by 17,169 contracts in the period to reach 38,501. Meanwhile, long positions rose by 5,821 contracts, bringing silver’s total net length to 15,803 contracts. Like gold, silver continued its gains amid the sentiment shift, rising by 3.6% as prices breached the important $17 level.

Noting that this is the second time in the last six months that funds didn’t hold onto their short silver positions, head of commodity strategy at Saxo Bank Ole Hansen added that last week’s buying of 23,000 lots marks the biggest purchase since May 2015.

ABC Bullion Economist Predicts a Breakout in Gold in 2018


Analyst Jordan Eliseo sees multiple reasons gold could reach $1,400 next year

gold to breakout in 2018

According to ABC Bullion’s chief economist Jordan Eliseo, gold is scheduled to break out of its bear market and post significant gains in the new year. In an interview with Kitco, Eliseo said that the yellow metal’s recovery will continue, with prices moving between $1,375 and $1,425 an ounce in 2018.

Among Eliseo’s chief reasons for a breakout in gold are U.S. equities, the dollar and the Federal Reserve. The analyst notes that the performance of stocks has been a major headwind for gold – 2017 was not only a year of records for equities, but also one of the only years where each month was positive for the stock market. Coupled with low volatility in the market thus far, gold had little opportunity to recapture its luster.

The article notes that some have already cautioned that the bull run in stocks is coming to a close, and Eliseo believes that even a partial correction in the stock market would greatly benefit gold. Another boost could come by way of the U.S. dollar, which Eliseo expects to decline in 2018 – a further plunge in the greenback would be a major catalyst for higher gold prices, said the analyst.

While many are looking towards the Federal Reserve’s next move, Eliseo doesn’t think the central bank has a lot of room for maneuvering. While successive rate hikes would, in theory, curb gold prices, Eliseo doesn’t see the Fed assuming a hawkish stance in 2018. The low level of core inflation, said Eliseo, should combine with concerns about growth to keep Fed policy mild throughout the year.

Physical demand should remain stable in 2018, states the article, with Western demand continuing to recover. Eliseo predicts that this year’s strong buying from Europe will pour over into the next year, along with the traditionally strong demand from India and China. Central banks will continue in their role as major drivers of physical gold demand, said Eliseo, with at least a few hundred tons being bought by nations worldwide in 2018.

Jim Rickards Predicts Gold Could Hit $10,000 an Ounce

Famed author believes the Fed could push the metal into a major rally

gold to hit $10,000

Gold’s price fluctuations have long been tied to the Federal Reserve’s actions – the perceived tone of Fed officials in public statements and meetings and expectations of rate hikes both tend to impact the price of gold, sometimes regardless of the Fed’s decision.

Expectations are high for a rate hike this month, and many even see a 100% chance of the Fed following through. Yet famed author and investor Jim Rickards is among those doubting the Fed’s ability to go through with the forecasted hike.

Talking to Kitco, Rickards pointed out the oft-overlooked factor of inflation goals. To Rickards, the Fed’s duty lies in job creation and price stability. With the former all but taken care of, the real issue becomes whether the central bank can meet its inflation targets year-on-year.

The article notes that, finding energy and food prices too volatile, the Fed tends to focus on Personal Consumption Expenditures, or PCE, in order to gauge whether inflation standards are being met. As Rickards points out, the PCE index continues to present a problem for the Fed due to its nine month-long decline, falling from 1.9% to 1.3% in that span.

Rickards says the threat of disinflation immobilizes the Federal Reserve and makes a December rate hike unlikely despite market expectations. Should the declining PCE stay at 1.3% or fall lower, there is no chance of a rate hike happening this month.

The article then recognizes Rickards’ opinion goes in line with the summary from the Fed’s latest policy meeting. In it, Fed officials noted that inflation might remain below the targeted 2% longer than expected, with some acknowledging that policy firming should be halted until inflation returns to the desired path. Some participants of the meeting also expressed concerns that following through with the planned rate hike before the end of the year could further subdue inflation expectations.

This discourse already helped gold come close to recapturing the $1,300 level, stopping just short at $1.295 an ounce. Rickards, however, believes that the motion around the $1,300 level is less important compared to what’s coming.

The author expects the Fed’s renegation of the December rate hike to have a massive impact on the markets, which will take a 180-degree turn. As a result, the dollar and bonds will fall while gold will rally further.

His long-term prediction is that gold will go as high as $10,000 an ounce.

While this level might sound exorbitant, Rickards stresses that the forecast is realistic as having such a price of gold is the only way to avoid deflation.

Why TD Securities Expects Gold Prices to Head Higher in 2018


Several analysts expect 2018 to be a bullish year for gold

gold headed higher in 2018

In spite of the possibility of successive rate hikes by the Fed, several analysts express in a recent TheStreet article that they expect 2018 to be a bullish year for gold. Among the primary reasons listed are the Fed’s potential reluctance to follow through with the planned rate hikes, geopolitical triggers, improved physical demand in key buying nations and investment demand as a hedge against stocks.

In the article, Bart Melek, head of commodity strategy at TD Securities Inc. (TDS), says he believes gold will benefit from a dovish Federal Reserve policy that will see a maximum of three rate hikes by the end of next year with real rates staying low. Aside from making gold a more attractive investment, lower rates also undercut the dollar, giving gold yet another boost. While there is a chance for multiple hikes next year, Melek sees a strong possibility for only a single hike by the end of 2018.

Expecting President Trump’s nominee for the next Fed leader to carry out a similarly dovish policy, Melek also listed the likelihood of a major correction in stocks and higher demand in India and China as further tailwinds for gold.

“I think 2018 is going to be a good year for gold, and it should shine bright in the New Year,” said Phil Flynn, senior analyst with Price Futures Group. More than merely acting as a hedge, Flynn explained in the article that the flimsy-footed run stocks have rendered gold “undervalued”, which could lead to purchases of the metal. Besides a potential price inflation coming from an improvement in overall commodities, Flynn also listed the launch of bitcoin futures as a boom for gold, stating that it will highlight the yellow metal’s role as an alternative currency.

Societe Generale’s metals analyst Robin Bhar thinks that gold could benefit if the planned U.S. tax cuts do not materialize, as this would make the Fed even more dovish. In the article, Bhar says conflict in the Middle East and terrorist threats around the world may continue to provide support, as will the likelihood that central banks remain net buyers of gold.

In terms of forecasts, the article shows that TDS sees gold reaching an average of $1,313 an ounce next year, with an average of $1,325 in the fourth quarter of 2018, compared to their expectation of $1,257 for 2017. Meanwhile, Flynn says gold will average $1,400 an ounce next year, with the potential to reach $1,500. Macquarie, a financial institution, agrees, stating in a recent report that gold will hit $1,400 for the first time in five years driven largely by a weakening dollar and political issues in the U.S.