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.

UBS Predicts Big Gains for Gold in the Next Year

Looking forward to 2020, the Swiss bank details a number of factors that are joining to push the price of the yellow metal higher. Find out what they are here.

ubs gols forecast

Photo by Wikimedia.org | CC BY | Photoshopped

After already predicting in August that the price of gold will reach $1,680 by 2020, Swiss bank UBS has raised its forecast for the metal for the second time this year. Now, the bank known for its conservative predictions sees the metal soaring to $1,730 by the end of next year, a roughly 15% increase from current valuations.

In their report, the bank’s strategists outlined various factors that should send the metal’s prices flying over the coming year. One will be a persistent environment of negative real rates that will create a dearth of haven options during a time when investors are rushing to safety. Central banks around the world have sliced their rates as of late, with many top economies now issuing bonds with a negative yield, forcing bond holders to pay the government. Despite this, the appetite for bonds has hardly subsided, showing that investors are turning towards risk-averse assets after a lengthy period of profit-chasing.

The global growth slowdown will also play a prominent role in gold’s continued leaps, as disappointing reports from top manufacturers continue to pour in. The slowdown ties directly into the U.S.-China trade war, which has already taken its toll on both economies as well as the global market. Other uncertainties include the rising likelihood of a U.S. recession, the risk of which currently sits at its highest point since 2008, according to a Federal Reserve gauge.

Despite some losses in September, UBS noted that the metal’s price hasn’t been jumping in both directions but rather appears to be on a steady climb. Although gold has fallen off since its recent high of $1,553, it has continually bounced off from the important $1,500 level, suggesting a potential long-term upwards trajectory.

The bank took note of current buyers, stating that individual investors have yet to truly make waves in the gold market. Instead, the gains so far have been powered in good part by large funds, which have steadily increased their gold allocation in recent months. Besides institutions, the jump to six-year highs was also driven by heightened interest by central banks around the world. In 2018, the official sector ramped up its purchases to more than 650 tons by year’s end, and early forecasts say that the number could be even higher this year. While many nations have made multi-ton acquisitions over the past months, China’s case has been especially prominent, with the People’s Bank of China now rivaling Russia in terms of bullion purchases.

According to the bank, the relative absence of individual investors thus far is a bullish development, as their entry into the market will play a vital role in what UBS sees as an exciting year for gold.