Gold Blows Past All-Time Record with Sights on $2,000

As the pandemic aggravates existing tailwinds, experts are detailing why the yellow metal – and silver too – can continue to rise. Here’s their reasoning.

gold silver soaring 7-27-20-3

The lauded $1,911 all-time high for gold prices that was set back in 2011 has not just been surpassed, but seems to be shaping up to become a stepping stone for a new record. A mere two years ago, the metal’s prices had bottomed out at around $1,200, and many were quick to call the record high from 2011 a one-off event that won’t be reclaimed in the foreseeable future.

Others, however, insisted that gold rests on exceptionally strong fundamentals in contrast to risk-on assets, and that the metal could be a single black swan event from soaring to new heights. Two years removed, and gold has indeed climbed by close to 50%, a staggering rise for a tried-and-true safe-haven asset.

The jump over the past week has been such that some analysts, such as Insignia Consultants’ chief market analyst Chintan Karnani, are betting on some form of price pullback. Yet Karnani doesn’t expect any correction to be significant, and sees the metal moving on to $2,000 before long.

Ross Norman, CEO of precious metals news and information provider Metals Daily, had predicted a precipitous climb for gold in December 2019, although he notes that the spike was quicker than expected. Gold has now broken out of its traditional tepid summer price movement for two consecutive years, lending credence to the notion that there is much more to the gains than just the global pandemic.

Norman, too, acknowledged that there could be a price pullback that will likely be met with an influx of buyers. He added that, unlike the precious metals market, the stock market’s gains appear to be disconnected from reality and are mostly running on sheer optimism. This idea is supported by the two asset classes abandoning their usual inverse correlation and moving up together.

In regards to the factors driving the monumental gains, Norman explained that the pandemic aggravated existing tailwinds such as an expansion of money supply, ballooning debt and negative real and nominal yields. George Gero, managing director at RBC Wealth Management, echoed Norman’s sentiment, adding the worsening of relations between the U.S. and China and election uncertainty to a mix that points to a long-running bull cycle for the metal.

Equally as important, silver prices have reached a seven-year high, climbing over $24 for the first time since 2013. The parallel move up is standard for the precious metals market and represents an important instance of silver finally catching up to gold. But those with a closer eye on both assets know that the gold-to-silver ratio is still heavily skewed in gold’s favor, and one cannot help but wonder if silver will soon follow historical precedent and post gains that eclipse even those of gold.

 

Strategist Predicts Soaring Gold as Coronavirus Continues to Ravage Global Economy

Prices may have moved sideways at the onset of the coronavirus crash, but this strategist expects them to take off in the coming months. Find out why here.

gold central bank 2-5-20-1

Photo by Flickr.com| CC BY | Photoshopped

It has frequently been stated over the past years that the gold market is waiting for a black swan type of event in order to explode to the upside. And, to Forbes contributor Rainer Michael Preiss, the coronavirus is perhaps an even greater black swan than was necessary.

The previous weeks have seen precious metals prices respond in kind, initially being moved sideways by a wholesome market selloff before strongly returning to the path they have been on since mid-2019.

The overwhelming demand for the metal has paired with disrupted supply chains as nations seek to contain the virus, making bullion difficult to access and sending premiums soaring. The lack of supply has even prompted Russia’s central bank to consider easing off its monthly multi-ton purchases for the time being to make room for other buyers, although the nation’s strategy has only grown more gold-centered as of late. And, perhaps most impressively, gold has outperformed the greenback during an unprecedented rush to liquidity.

As optimistic as these developments are when it comes to gold’s prospects, Preiss thinks the action in the market is only starting to heat up. As Preiss points out, the global economy was already in a rough spot before the coronavirus was first mentioned, suffering from a combination of historic debt levels and overblown equity valuations. Early estimates that measures to contain the spread of the virus will cause a 20%-25% decline in global economic output paint a sordid picture moving forward.

A peaking stock market in February, driven by bullish investors who rode the wave of tax cuts and Federal Reserve rate slashes, was not enough to offset the persistent contraction in global growth. It also did little to tackle the issue of global debt, which is projected to accelerate even further and reach an incredible $257 trillion by the end of Q3. Another interesting takeaway is that corporate share buybacks played a key role in propping the U.S. equity market to its February highs, leaving the market and the economy as a whole vulnerable to an external shock.

Preiss finds it difficult to envision a scenario where gold doesn’t continue outperforming. The general consensus is that the aftermath of the crisis will result in a global recession and therefore usher in some mixture of debt deflation, declining interest rates and massive amounts of money printing. As veteran investor Mark Mobius recently reminded investors, any of these factors represent a powerful driver of gold prices on their own.

Besides the obvious issue of currency debasement due to a jump towards quantitative easing programs, Preiss thinks that a possible crisis in the global banking system would bring gold to dizzying heights due to the metal’s cherished property of existing outside said system.

Coronavirus Pushing Gold Towards All-Time Highs

As fears grow around the globe, investors are moving heavily into gold. Here’s why analysts from Citi say the yellow metal can reach $2,000 in 12-24 months.

corona virus economy 1-31-20-1

According to Citi’s team of analysts, the coronavirus outbreak could be the launching pad to push gold above its all-time high of $1,900 sooner than expected. The yellow metal posted its best performance in six years in 2019, overcoming a key resistance level in $1,500 and gaining roughly 20% during the 12-month period.

Gold continued to barrel into the New Year as military tensions pushed the metal above a seven-year high of $1,600 before tracing back and remaining perched above last year’s high of $1,553. Now, gold has pushed through the $1,600 level with considerable force as investors ponder the possible ill effects that the pandemic could have on global growth, via CNBC.

Concerns regarding the impact of the coronavirus on global growth seemed to materialize last week, as Apple, one of the highest-earning companies in the world, announced that it would miss its quarterly revenue mark due to supply and demand issues largely related to the spreading of the coronavirus in China. Investors were quick to jump to safety and push gold above $1,600 on the same day. The metal’s high of $1,648 during Friday’s trading session isn’t too far off from Citi’s short-term prediction, as the team places its six-to-12 month forecast for gold at $1,700.

The real gains, according to the team, will come over the next 12 to 24 months as the same issues that have powered gold’s exceptional bullish run in 2019 become even more prominent this year, especially when paired with the potential effects of the coronavirus pandemic.

Last year, gold soared as the Federal Reserve and many other central banks turned dovish and began slicing interest rates. In the Fed’s case, the successive rate cuts came as a response to the U.S.-China trade war, a long-standing source of worry that intensified fears of a domestic recession.

As per Citi’s team led by Aakash Doshi, investors are pricing in a minimum of one rate cut this year, and global growth continues to linger in a state of contraction. These factors alone are powerful enough to keep gold’s bull run going, but Doshi noted that there is even more upside to the metal.

The analyst said that gold’s performance since the start of the year reflects growing concerns over the true state of the U.S. business cycle, which were present through much of the previous year. Furthermore, the upcoming U.S. election will add another degree of uncertainty that is almost sure to serve as a strong tailwind for the metal.

Persistent questions surrounding the effects of the U.S.-China trade war are likely to become prevalent as China’s economy and global exports begin to feel the effects of the coronavirus crisis. Paired with the new environment of negative-yielding or otherwise flimsy-looking bonds that have all but eliminated one of the few havens available during a time of a flight to safety, Doshi and his team are certain that gold can break its own record and push above $2,000 an ounce over the next 12 to 24 months.

Investors and Central Banks Moving Back Into Gold

With stocks at all-time highs and global negative-yielding debt over $15 trillion, investors and central banks alike are making a huge shift into physical gold.

gold 2-3-20-2

The stock market, viewed by many as being diametrically opposed to gold, is still hitting all-time highs and extending its decade-long bull run. Despite this, the outflow of money from both the private and official sectors suggests that investors are not quite as optimistic regarding equities’ future prospects.

Last year ushered in what many view as a new norm of negative-yielding debt in the form of government bonds, which has since climbed past $15 trillion, the highest figure on record. Central bankers have demonstrated a willingness to keep easing monetary policy after a 2019 that saw a sudden dovish shift by central banks worldwide. And while many sovereign bonds have since dipped into negative territory, along with U.S. Treasuries’ exceptionally weak showings, the appetite for haven assets is tremendous.

According to recent research by J.P. Morgan analysts, investors are becoming more and more concerned in regards to equities and are slowly but surely rebalancing their portfolios. JPM’s analysts noted that global funds have poured a combined $1 trillion into negative-yielding bonds over the past year. Money managers have likewise taken note of gold’s outperformance over the past six months and now hold the highest weighting in gold since 2012, just after the metal hit its all-time high.

Central banks are, by and large, following the same strategy. 2018 and 2019 were record years in terms of purchases from the official sector, as countries around the world bought more than 600 tons of bullion each year, a figure that doubled most previous expectations. Central bankers, however, might have different motives than simply wanting to diversify their portfolio.

Although the U.S. dollar has held steady in its place as the global reserve currency, recent signs suggest that various countries might be looking to either usurp the greenback’s status as the reserve currency or reduce their foreign reserves in case the dollar pulls back significantly. As Barron’s Randall W. Forsyth points out, the inflows into gold from various angles are far from uncorrelated. The loose monetary policies that central banks continue to unravel have artificially inflated the prices of various assets, including stocks and bonds, reigniting existing fears that equity valuations have been overblown for some time.

Regardless of the demand spike, the JPM team thinks that both private and institutional investors remain underexposed to gold and expects them to continue buying up the metal at the same frantic pace. The team also predicts that the strikingly high purchases from central banks will persist due to their low overall allocation to the yellow metal, stating that some nations might be aiming to double their allocation to gold in the near future.

As Forsyth notes, gold is mostly approached as a safety play, as it guarantees that the investor will retain their wealth in the event of an economic crisis. But with gold having gained more than 30% in the span of two years, it would be difficult to overlook the metal’s role as a profit-making asset that can generate returns just as significant as those from much riskier investments.

The Many Reasons Gold May Rally in 2020

After a strong year in 2019, two analysts are just as bullish on the yellow metal for 2020. Here are three significant reasons for that optimism.

gold reserve currency 5-20-19-1

As 2019 drew to a close, some analysts pondered whether gold can continue its outstanding bull run, which brought the metal’s price up by nearly 20% in the second half of the year. Those questions were emphatically answered less than a week into the New Year, as gold breached the $1,600 level for the first time in seven years, riding on tensions between the U.S. and Iran.

Although prices have pulled back as tensions simmered, gold remains around last year’s high of $1,553, a level last seen in 2013. According to various strategists, the exceptional start to the year that gold has had could be the continuation of 2019’s upwards momentum due to 3 key reasons: ongoing geopolitical risk, a weakening of the dollar and the new norm of negative real rates.

In a note discussing the latest bout of price gains, UBS commodity strategists Joni Teves and James Malcolm shared their view on why gold has a solid case to retrace to the $1,600 level and form a base around it. Out of the three factors, the strategists hinge the least importance on geopolitical tensions. Nonetheless, should these tensions spill over and affect factors such as inflation or growth, the pair noted that gold would be primed for another massive jump. ING’s Head of Commodities Strategy Warren Patterson also stated that traders are more likely to assume significant long gold positions in the wake of the Middle Eastern flare-up, a notion supported by latest data from the Commodity Futures Trading Commission (CFTC).

Speaking about other drivers, Teves and Malcolm pointed out that gold has been outperforming in a variety of different currencies. The strategists expect U.S. economic data for Q1 2020 to come in as underwhelming, which would serve as another tailwind for gold and potentially weaken the dollar.

Colin Hamilton, managing director of commodities research at BMO Capital Markets, said that China is another important factor to look out for as the nation ushers in its own new year. As Hamilton explains, the past few months have hinted towards notable improvements in the Chinese economy. If data after the Lunar New Year confirms that an economic recovery is underway, investors can expect a significant increase in physical demand from the famously gold-favoring nation.

Besides an expected rebalancing of portfolios to increase investors’ exposure to gold, Hamilton also highlighted central bank gold demand as another important price driver. With official sector purchases riding all-time highs for two years straight, Hamilton expects the pursuit of de-dollarization through bullion purchases to keep backing the yellow metal up, especially as new countries enter the gold market with sizeable purchases.

Report: Gold Prices to Increase Over $200 in Three Months

With a strong performance in 2019 nearly in the rear view window, a pair of analysts predict even more in 2020. Here’s why they believe gold will surge.

gold price

In his latest piece, Forbes contributor Simon Constable looked at some of the reasons why analysts are calling for gold’s price to jump to $1,700 as early as March. A recent report by Wolfe Research examined the up-and-down price patterns of various financial assets, noting that gold’s pattern is signaling a 15% move up over the next couple of months based on previous performance.

John Roque and Rob Ginsburg, the report’s authors, have analyzed the gold market’s technical chart and found a persistent pattern dating back to 2015. Since then, there have been seven instances where gold has taken a sideways turn on the chart for a prolonged period of time after a price spike. Roque and Ginsburg explained that these instances of sideways price movement, such as the one seen over the last couple of months, serve to form a new and considerably higher base for the metal. As historical precedent shows, each of these sideways turns is followed by a conspicuous price gain averaging at 15% over the next 75 days with a median gain of 14% over the next 83 days.

Although Constable notes that the average percentage means that the amount gained over the next three months could vary, the analysts are certain that we are seeing an eighth such pattern forming and are forecasting gold prices to jump to $1,679 by February. As the pair explains, the pattern on the chart started forming when gold climbed to $1,546 in September and then fell to $1,455 in November, which began creating a base that will lead to the predicted breakout.

However, the analysts see far more in store for gold than just a 15% percent jump over the next three months. The Wolfe report echoes the opinion of various analysts who are stating that gold is currently enjoying an unprecedented amount of momentum. While the report mostly focuses on technical movement, analysts have repeatedly said that gold is being supported by an immense amount of tailwinds, including a deteriorating global economy, a slew of geopolitical risks and the looming threat of a supply glut in the not-too-distant future.

Regardless of whether gold meets the $1,679 mark by February or trends a bit lower, Roque and Ginsburg have few doubts that the current cycle of price gains stands on much stronger footing than previous ones. Therefore, no matter how much gold gains in the short-term, the pair expects the cycle to culminate in gold surpassing its all-time high of $1,900, last seen during the financial crisis of 2011.

Hedge Funds, Central Banks Seeking Protection with Gold

With gold prices dipping in the past few months, here’s why some of the most prominent of these institutions took advantage of the buying opportunity.

gold prices

Photo by Flickr.com| CC BY | Photoshopped

In an interview with Kitco News, Phil Streible, senior market strategist of RJO Futures, shared his views on why some of the largest buyers of gold seem to be stockpiling the yellow metal despite a lack of overt volatility. Even though the latest batch of economic data that revolves around lower interest rates has held up, actions from big investors and central banks alike suggest that both could be preparing for a coming crisis.

This notion is supported by gold’s recent price pullback, which may have offered big buyers an opportunity to stock up after a major price spike this summer. As Streible noted, gold has a little more room to trend lower with major support at $1,425, meaning that these big investors could continue to take advantage of lower prices before gold bounces back to its major resistance at $1,550.

Speaking about the buyers themselves, Streible noted that Ray Dalio has been perhaps the most prominent figure in the gold market in recent weeks, having added roughly $1 billion of put options on the S&P Index. Dalio, the billionaire investor who manages Bridgewater Associates, the world’s best-performing fund, has long been an advocate of buying and holding gold, and has based much of the fund’s strategy around the yellow metal. A move like this could potentially indicate that Dalio and his team are seeing something that other investors aren’t and are making the most of an opportunity before a coming storm.

Another source of heavy gold demand has been central banks around the world, with various nations who were previously absent from the gold market raising eyebrows with their sudden multi-ton purchases of gold bullion. Last year set an all-time high record of gold purchases from the official sector, with the total year-end figure clocking in at 651 tons while most forecasters had previously expected a number closer to 300 tons. This year, many are expecting central banks to outdo themselves again, with early predictions placing the total gold purchases by central banks in 2019 above 750 or even 800 tons.

Streible thinks that there is little question that central banks are seeking protection and safety through these gold purchases. The analyst named the various trade wars currently taking place as perhaps the key reason why central banks are rebalancing their portfolios in favor of gold.

Streible also noted that, despite the U.S. dollar’s inverse correlation of gold, the greenback has pulled back alongside the yellow metal. Streible sees this as a result of lower interest rates that are pushing investors to take their money out of banks and move it elsewhere, adding that this is comparable to other fiat sell-offs during times of perceived currency weakness. Although the Federal Reserve appears to be holding a neutral view on the U.S. economy, Streible said that investors should look out for potentially disappointing trade data, scheduled for release next week.

Goldman Sachs: Gold Prices to Hit $1,600 in Six Months

Following the Fed’s third interest rate cut in two quarters, Goldman Sachs is increasingly bullish on gold. Here’s why they say prices can hit $1,600 by April.

gold rising

The Federal Reserve met most market expectations this Wednesday by cutting interest rates for the third time this year after rigidly sticking to a tightening cycle that started in 2015. In a report published ahead of the Fed’s decision, Goldman Sachs predicted that the Fed’s latest cut would be accompanied by a more hawkish tone than those of previous months in order to ease concerns over the domestic economic trajectory.

The cuts started mid-summer, following an abrupt policy shift meant to offset the effects of the U.S.-China trade war. With a third cut in the books within two quarters, Goldman’s analysts believe that the Fed is growing wary of investors pulling back over a palpable domestic and global growth slowdown.

The three cuts have already given gold plenty of support, as the metal has enjoyed its best run since 2013 and remains firmly above the $1,500 resistance level. Yet Goldman’s analysts believe that there are plenty of other factors supporting the gold market that will push gold to $1,600 over the next six months.

These include conspicuous de-dollarization by central banks around the world, which bought a record 651 tons of bullion in 2018. Forecasters expect the official sector to exceed this figure handily this year, with most predicting a combined 750 to 800 tons of bullion bought by the end of 2019.

Goldman also lists the many risks that have kept investors on their toes this year, including the aforementioned trade conflict, tensions with the Middle East, the likelihood of a no-deal Brexit that could disrupt the eurozone and political turmoil in the U.S. To top things off, the global growth contraction has resulted in diminished factory production as well as business investment.

Goldman’s team also took note of an increased affinity towards defensive portfolio rotations, noting that the economic climate has created a precautionary savings glut with an increased demand for cash that has boosted the price of gold and bonds, despite the latter’s dismal showings. This risk-averse investment and uncertainty regarding policies is unlikely to be resolved anytime soon, said Goldman.

Standard Chartered’s precious metals analyst Suki Cooper voiced similar thoughts in a report released last week, stating that three rate cuts would be highly supportive of gold, especially given the number of risks on the horizon. Cooper also noted that the Fed might move on to cut rates for a fourth time in December. Adding on to Goldman’s prediction that gold will hit $1,600 by Q2 2020, Cooper said that the metal is so well positioned that any pullback in prices would be restrained to the $1,450 level.

U.S. Economic Anxiety Rises As Big Name Retail Chains Continue to Close Massive Quantities of Stores

All over the U.S., retailers big and small are closing dozens – or even hundreds – of their stores. Why is this happening and, more importantly, what does it mean for the future of the country’s economy?

Michael Snyder, the man behind the Economic Collapse Blog, is not the only one who thinks this is a sign of sinister things to come. Middle class families have long been the main driving force behind the economy, thanks to the ‘spending money’ they could put aside from their incomes. But now, as the middle class is being “systematically destroyed”, as Snyder puts it, consumer spending just isn’t there anymore.

unnamed

Photo Credit: ronaldhennessy via Compfight cc

Large and well-known retailers like Abercrombie & Fitch and Barnes & Noble will have closed hundreds of stores by the end of 2015. Sure, part of that could be attributed to the rise of online retailing, but that’s far from the real culprit behind struggling sales: lack of money to spend.

A troubling statistic sheds light on why people suddenly have less – if any – money to spare. An analysis performed by Enterprise Community Partners revealed that one out of four American citizens now spends half of his or her income on rent. With the rest being spent on things like groceries and gas, it’s not hard to see why little is left for discretionary spending.

This situation sounds bad enough, but Snyder believes the worst is yet to come. He quotes Thad Beversdorf’s belief that consumer spending is showing “the initial signs of a severe pull back” to strike an unpleasant point: the current trajectory of our economy is eerily reminiscent of the build-up to the collapse of 2007/2008.

Snyder concludes by wondering: if thousands of stores are being closed already, what will things look like when an economic crisis truly hits the U.S.? “Once it does, the business environment in this country is going to change dramatically, and a few years from now America is going to look far different than it does right now,” he warns.