Bank of America Predicts All-Time High for Gold in 2020

Strategist Paul Ciana cites numerous factors for his forecast, including COVID-19 uncertainty, international trade tensions, the upcoming election, and more.

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Having extended its spectacular performance from the second half of 2019 due to a global pandemic over the past few months, gold is now up roughly 16% since the start of the year, touching $1,779 on Wednesday for the first time since October 2012. And, according to a recent note by Bank of America, the trend is slated to continue, as global uncertainty continues to rise.

In the note, Bank of America Chief Global FICC Technical Strategist Paul Ciana explained why the metal is primed to keep testing the 2012 highs in the $1,798-$1,805 range this week and possibly surpass them. If the metal indeed breaks past $1,800, Ciana pegs the all-time high of $1,920 as the next price target to look out for.

As Ciana noted, the end of Q2 marked an eight-week-long uptrend for gold, adding that technicals point to $1,900 in Q3 should the markets continue to behave in similar fashion. Furthermore, Ciana said that gold is already riding an upwards wave towards $2,000, stating that a range of $2,114-$2,296 is a realistic scenario.

Speaking about the reasons for his bullish prediction, the analyst cited a rise in uncertainty amid reports of new virus cases breaking out in the U.S. This has subdued expectations of swift economic recovery, which were already scarce among both market watchers and Federal Reserve officials. Perhaps most importantly, these concerns have flared up international trade tensions, which were a major talking point throughout 2019 and allowed gold to inch ever higher throughout the year.

Renewed concerns over another outbreak prompted White House trade advisor Peter Navarro to suggest that there might not be any trade deal with China, a statement that would be a massively powerful gold price driver on its own. However, latest reports have shown that the White House is also eyeing tariffs of up to 100% on $3.1 billion of goods from several of Europe’s top economies. While the Trump administration previously hinted towards a possible reassessment of trade relations with Europe, these details have materialized concerns over a negative impact on the domestic and global economy.

Along with these reasons, Ciana also said that the uncertainty surrounding the upcoming U.S. election should help push gold prices higher, an opinion shared by many other experts. In an interview with CNBC, HYCM Chief Currency Analyst Giles Coghlan voiced similar ideas as to where gold is heading, stating that volatility is likely to dominate the markets over the next few weeks.

Predicting a rise in both gold and silver in the medium-term, Coghlan took note that high-net-worth individuals have been bolstering their portfolios with gold as uncertainty rises from several angles. And while Coghlan said that an equity sell-off similar to the one in March could again affect gold, the analyst noted that it would probably not bring the metal below $1,680 while also allowing for an influx of new buyers.

Inflation Is Much More Likely Today Than Following 2008

Despite fears in 2008 that Quantitative Easing would debase the dollar, they were never realized. Here’s why one expert believes this time could be different.

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In a recent analysis, FXEmpire’s Arkadiusz Sieron contrasted the financial crisis of 2008 to the one we are facing now, along with the Federal Reserve’s response to each, to see if a major spike in inflation could be around the corner. Despite prevalent fears in 2008 that the Fed-driven quantitative easing would debase the dollar or possibly even usher in hyperinflation, the greenback managed to stay afloat and maintain its position.

As Sieron points out, however, the nature of the previous crisis differed significantly from the pandemic’s post-effects. In 2008, banks were the primary beneficiary of the monetary stimulus, as the crisis was a financial one from the ground-up. The Fed printed bank reserves instead of actual money in order to stimulate banks, the former being a kind of inter-bank currency that allows banks to lend more.

To Sieron, it’s clear why the environment from 2008 didn’t result in inflation. Debtors were deleveraging on a great scale, even to the point of the growth value of credit supply going into negative territory for a while, as American households weren’t particularly keen on taking out loans. Having just been destabilized, the banks weren’t keen on acting as the creditors, either.

Now, the situation is a starkly different one. Besides the unprecedented scope of money printed into the economy, the main purpose of the stimulus is to boost various businesses that have suffered as a result of the crisis. As opposed to 2008, lenders are being encouraged to issue loans to a wide array of debtors, be they consumers, businesses or banks. The Term Asset-Backed Securities Loan Facility and the newly-created Main Street Lending Program are both meant to funnel money to a diverse array of clients in order to revitalize the economy.

The effects of these programs and the differing nature of the crises can already be observed. Demand for loans from business owners is soaring, and banks are being urged to meet it, as shown by the acceleration of the pace of growth of credit and money supply between January and April.

While Sieron doesn’t overly subscribe to the idea of hyperinflation, he points out that gold will nonetheless do well should a milder form of inflation grip the financial system. Stagflation, a combination of low growth and a spike in consumer prices, appears to be the most likely scenario, especially considering the contracting growth rate prior to the pandemic, and it is one in which gold has historically done well in. And, as has frequently been noted, the flip side is just as bullish for the metal, as a deflationary hit to the system would create another crisis and further demand for safe havens.

What Gold’s Recent Price Action Tells Us About the Stock Market Rally

Stocks are up 30% from their March lows, but one market watcher believes that gold’s recent surge in price exposes the rally as a false one. Find out why here.

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The hard-hit stock market has seen a recovery of nearly 30% since the March lows that were brought on by the coronavirus sell-off. Yet even though the stock movement seems to be giving off an aura of optimism, CCN’s Joseph Young points out that this optimism is not only misguided, but also questionable.

As Young notes, the recovery itself rests almost solely on the belief that the pandemic will subside and that the U.S. and global economies will recover. Setting aside scientists’ warnings that the nature of the virus could be seasonal, the data itself appears to point in the opposite direction, forecasting an economic contraction even in a best-case scenario where world governments get a handle on the virus.

Young expects reality to set in as soon as Q2 earnings reports are released, which should wake up investors to the true state of the economy. Most corporations have already downgraded their revenue expectations in a move that clearly signals lower productivity. As just one example of the hollowness of the stimulus-powered stock market gains, Young refers to commentary by Dave Portnoy, founder of Barstool Sports and host of a stock market show called Davey Day Trader.

Portnoy singled out the Norwegian Cruise Line, whose stock went up 20% even though the company has all but closed up shop, to highlight just how unrealistic expectations are. Yet not all investors are buying into the tale of economic recovery, as evidenced by the movement in the gold market.

Gold has posted exceptional gains over the past week, closing Friday right around $1,700 an ounce. To Young, the constant inflows into the gold market show a lack of confidence in the global economy and the many uncertainties that surround it. The stock market acts as gold’s biggest competitor, yet the metal has moved up alongside stocks both ahead of the pandemic and during its seeming resolution, suggesting that investors are plenty aware of the actual state of affairs.

Indeed, even before the first mentions of the coronavirus began to pop up, there were many warnings that stock market valuations were overblown and that the 11-year bull market was running on fumes. The flock towards the supposed safety of bonds, despite their historically low showings, further affirms a lack of belief that a recovery is underway.

As for stocks, the aforementioned warnings have only grown more intense, and Young thinks that a correction could be very close. The Relative Strength Index (RSI) of the Dow is approaching 70%, and Young notes that a 70%-75% range translates to highly overbought territory. Should a correction in the Dow occur as the world continues to reel from the effects of the pandemic, Young believes that the downturn in sentiment could be exceedingly harsh.

Mad Money Host Urges Americans to Diversify with Gold

As the stock market takes a beating, Jim Cramer has come out forcefully in favor of buying gold. Here’s why he thinks this is the right time to make the move.

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In a recent series of tweets, veteran analyst and host of CNBC’s “Mad Money” show Jim Cramer shared his insights on the best plays that investors can make during times of unprecedented market panic related to the coronavirus.

Initially a contagion that was mostly confined to China, the coronavirus has since spread throughout the globe and has, as of Wednesday, infected more than 121,000 people and claimed over 4,300 lives. On the same day, the World Health Organization officially declared the coronavirus a global pandemic, with the WHO Director-General Dr. Tedros Adhanom Ghebreyesus mincing no words at an emergency press conference and adding that both the speed at which the virus is spreading and the ineffective response to it are giving cause for alarm.

Cramer, like many others, believes that gold is the place to be in as the crisis unfolds, stating that it’s still not too late to jump on the safe haven wagon. Cramer’s words come as both gold and the broader market experience action that ranges from peculiar to dismal.

While stocks have seen selling across the board ever since the virus began threatening global economies, last Monday was a particularly gruesome point for a market that was testing its highs not too long ago. Despite posting its worst trading day since the 2008 financial crisis on Monday, stocks continued tumbling throughout the rest of the week, as exemplified by the Dow dropping another 1,300 points on the day of the WHO’s announcement.

Gold’s trajectory has been difficult to interpret for many. Perhaps the most notable price action happened at the start of the week, when gold met numerous bullish forecasts by launching above $1,700 for the first time in more than seven years. Since then, the metal has trended lower and closed Friday’s trading session slightly above $1,500.

Although the whirlwind in the gold market might seem confusing, a look at the previous weeks shows that the price movement is in line with an overwhelming rush to liquidity. Over the past few weeks, gold was likewise affected by the broader selloff, but managed to inch back up every time as other assets kept tumbling down. Even Friday’s levels still represent a six-year high, showing that the market is far from the dire straits seen in other asset classes.

Cramer noted that the same investment rules he always sticks to are very much applicable in gold’s case, stating that people should look at an asset’s prospects and make calm decisions instead of succumbing to panic selling. With gold being perhaps the only reliable haven asset left, and with all the factors that have driven its incredible price jump since the summer of 2019 only becoming more prominent, plunges such as those on Friday represent an exceedingly attractive entry point.

Cramer rounded up his views by stating that the coronavirus has already had a severe impact on the global economy, with multiple sectors falling into recession, and that there aren’t many assets that investors should want exposure to in the current climate.

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.

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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.

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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.