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

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

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.

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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.

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.

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.

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.

Gold’s Safe-Haven Allure Has Metal Soaring

Numerous factors converged towards the end of 2018 and sent gold soaring towards a six-month high.

Despite ups and downs in the second and third quarters, Newsmax reports that gold rebounded to end 2018 on a stronger note than most other assets. Numerous factors converged towards the end of the year to send the metal soaring towards a six-month high.

According to the Newsmax article, a key among these has been the escalating trade war between the U.S. and China. Although gold didn’t immediately react to tensions between Trump’s and Xi’s cabinets, the ramifications of the back-and-forth tariff battle came into prominence as the year drew to a close. With concerns that Xi could maintain his hardline stance for the duration of President Trump’s current term, the conflict is likely to keep sending shock waves across the market throughout 2019.

The threat of a government shutdown in the U.S. materialized on December 22 as Congress members found themselves unable to reach a budget consensus. While it’s unclear how long the shutdown may last and how hard its effects will be felt on the economy, President Trump recently warned that the shutdown could last for months or even years in the absence of a sound agreement.

The article states that the uncertainty surrounding the situation and the negative implications for both citizens and state were another contributor to gold’s price jump.

In the weeks leading up to the shutdown, the U.S. economy faced other hurdles as analysts pointed to signs of stagnant growth in the near future. For most, the biggest talking points have been the equity market’s plunges after years of record-setting performances. According to the article, many found it particularly concerning that previously robust tech stocks, such as Amazon and Apple, experienced some of their worst losses ever during this stretch.

Government officials have by and large dismissed these red flags as mere flash crashes, but worries persist that the stock drops could be a harbinger of another recession.

Moving into 2019, Newsmax reports that gold faces a favorable landscape free of several headwinds that kept the metal down the previous year. Jingyi Pan, market strategist at IG Asia, pointed to the expected easing of the Fed’s hiking policy as perhaps the metal’s most bullish driver this year.

Having hit $1,280 an ounce in December to post its best monthly gain in almost two years, the metal looks to make the most of reignited safe-haven demand as it heads towards the next resistance level. Benjamin Lu, an analyst at Phillip Futures, lists $1,309 as the next breakout point for gold, adding that strong haven demand is sure to persist for the remainder of the quarter.

According to Newsmax, other precious metals have come out with strong performances of their own. Silver jumped by more than 9% over the past 30 days amid calls that the metal is severely undervalued and slated for an upwards correction. Palladium likewise rounded up its third consecutive year of gains amid a notable spike in demand.

Portfolio Theory Makes Case for Gold Hard to Ignore

The case for investing in gold today is as strong as it was during any tumultuous period in history.

As Seeking Alpha’s Logan Kane notes, gold boasts perhaps the most diverse palette of investors out of any asset. Although some traders swear by other, riskier assets, Kane says it’s hard to ignore the case for gold as an ultra-reliable choice.

Since 1968, the metal has returned an average of 7.1% each year. It has also handily beaten the dollar since President Nixon abolished the gold standard, with the greenback losing 98% of its value against gold. On first glance, the global geopolitical landscape of today seems to be far removed from the strife-ridden 1930s, 1940s and 1970s, when gold was also a prominent investment.

Yet Kane points out that appearances can be deceiving. He writes that, while the most advanced countries of the world have, for the most part, managed to hold onto peace and prosperity, emerging markets are a constant powder keg which threatens to spill over to the rest of the world.

In calmer times, some investors insist on moving into riskier assets like stocks or even bonds in pursuit of profit. But as Kane points out, investing in such assets subjects one to currency devaluation regardless of the landscape. Moreover, data shows that gold has beaten stocks on a price-appreciation basis since 2004, putting into question the idea that equities are a more lucrative bet.

Investors such as Ray Dalio have demonstrated that investing in gold during periods of higher interest rates can provide incredible returns. Further analysis shows that gold’s returns are much more reliable compared to stocks, appreciating in a methodical upwards fashion as opposed to downside crashes found in equities.

According to the article, the case for investing in the metal today is as strong as it was during any tumultuous period in history. The metal’s purpose is to protect investors from the ever-present volatility, offer unparalleled diversification to any type of portfolio and shield them from inflation.

Contrary to the 5% allocation to gold that some money managers preach, an analysis of portfolios over the past decade showed that gold enjoys far more favor among investors, with some allocating up to 14% to it. In times of peace, the metal provides a very reliable 5% annual return with massive potential for gains should the world stage turn sour.

Kane is also critical of the view that gold is a niche investment appealing to a narrow range of investors. Extremely wealthy individuals and central banks swear by gold to hedge their bets, and the latter remain the strongest buyers of gold with hundreds of tons of bullion acquired every year.

Those who ignore gold’s role in a portfolio and instead focus fully on stocks and bonds have been known to suffer severe losses when these assets take a dive, reports the article. Conversely, investors like Dalio show that faith to the metal and an understanding of commodity dynamics can return more profit than any risk-oriented investment strategy, all the while giving peace of mind to investors should another recession or conflict take center stage.

Reliable Chart Sends Bullish Message to Gold Bugs

Analyst states U.S. Dollar/Gold ratio stands as accurate gauge of where the metal’s price is headed.

As Shawn Langlois points out in a MarketWatch article, there is plenty of geopolitical and economic strife gripping the world right now. The recent flash crashes of the U.S. and Asian stock markets are but one example of why demand for safe assets could be skyrocketing.

Besides trouble in stocks, the article writes domestic investors have felt the burden of an ongoing trade conflict between the U.S. and China with severe implications for the global economy. The Federal Reserve’s policy has likewise caused its share of worry, with some accusing the central bank of leading the country towards a recession through excessive tightening.

On the global stage, the article reports emerging markets have looked particularly wobbly as Turkey and Venezuela each slipped into a full-blown currency crisis. Growth and budget concerns that the European Union faces have also raised red flags from the eurozone.

But despite all this, gold investors remain conspicuously absent from the market. According to the article, while the metal notched some impressive wins over the past weeks, gold bugs still haven’t seen a flight to safety in proportion with the risks on the horizon.

However, the article states one technical chart suggests that the waiting might be over. In his examination of the U.S. Dollar/Gold ratio, analyst Chris Kimble noticed that the chart is sending a bullish message and is potentially signaling a reversal in the dollar.

According to Kimble, the U.S. Dollar/Gold ratio stands as one of the most accurate gauges of where the metal’s price is headed. The ratio’s climb from 2011 to 2016 corresponds with gold’s pullback from its 2011 highs. Kimble blames this year’s strengthening of the ratio for a lack of real upswings in the gold market.

The analyst believes that U.S. Dollar/Gold ratio chart is forming a double top below the falling channel resistance. In trading terms, double tops are two peaks in a row that can signal the bearish reversal of an asset.

While the dollar has looked strong this year, Kimble notes that the U.S. Dollar/Gold ratio has been on a decline since its 2016 peak. The dollar’s momentum since the start of the year may have kept gold prices in check, but Kimble thinks that the streak is finally ready to spill over and reverse.

If true, this could be a herald of what many believe is an overdue correction in the dollar index. Should this be the turning point for the greenback after a nearly 12-month long rally, the article writes gold investors will indeed have something to look forward to as the metal quickly responds to any sign of weakness in the dollar.

Senior Analyst Sees Rise in Gold and Silver Prices in 2019

French bank Natixis shares what could push the metals significantly higher.

According to the latest commodities report by French bank Natixis, the era of a strong dollar pushing down on gold prices is coming to a close. A recent article on Kitco reports that the bank’s Commodities Price Outlook for 2018-2019 has gold and silver ending the next two years on a significantly higher note.

Gold Expected to Rally By End of Year Despite Unjustified Performance

Director of WisdomTree Investments says gold is in the perfect spot for a rebound.

Some would call gold’s measured performance this year understandable due to the different headwinds the metal has faced. Since the turn of the year, gold has had to contend with a stronger dollar, rising bond yields and a hawkish Fed rhetoric that promises multiple rate hikes by the end of 2019.

Why Gold Market Will Act Differently During Next Financial Crisis

Some analysts think the next crisis will be the same as 2008, but others disagree, specifically when it comes to gold.

Despite the perceived strength of the U.S. economy and votes of confidence from global central bankers, one doesn’t need to look far to find warnings that another financial crisis is approaching. These doomsday scenarios usually involve the U.S. slipping into a recession, with the accompanying erosion of the dollar and soaring inflation. A recent article on Streetwise Reports focused on the current economic landscape to see how a new financial crisis would differ from that of 2008, and what it would mean for gold prices.