Gold’s Rally Just Getting Started, Say Numerous Analysts

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Gold's Rally

Currently, prices are moving up alongside those of stocks, but a bevy of analysts agree that the yellow metal still has plenty of upside. Find out why here.

As U.S. and Chinese stocks recover after massive amounts of stimulus was pumped into both economies, some are surprised to see gold doing just as well as equities. Although the two have traditionally had an inverse correlation, it has been severed for some time now.

Boris Schlossberg, managing director of FX strategy at BK Asset Management, pointed out the differences between the respective rises in gold and stocks. In the case of the latter, the equity market’s upswing seems to rely heavily, if not exclusively, on expectations that stimulus programs will translate to corporate earnings and pave the way to an economic recovery. Prior to the pandemic, many analysts were tapping their feet as they waited for a correction in the longest-running bull market in equities’ history while warning that valuations seem to be heavily overblown.

In contrast, gold has been on a steady rise since summer last year, when central banks around the world began slashing interest rates. While a major factor, gold also had plenty of other drivers that facilitated a slew of price gains until March, when the metal briefly dipped before going on to breach $1,800 for the first time since 2011. Although the pandemic was a big reason for this move, and persistent concerns about the coronavirus are fueling gold demand, there is much more to be said about gold’s gains over the past year.

Michael Novogratz, CEO and chairman of Galaxy Digital, believes the current macro environment is a perfect one for gold to breach its all-time high. Although Novogratz took note that investors have been quick to jump on optimistic sentiment, the CEO believes things will ultimately boil down to the unprecedented amount of money printed by the Federal Reserve and other central banks. With gold having traditionally acted as the primary guard against inflation and a way of preserving wealth, Novogratz expects the metal to move past $1,950 fairly soon. The price target doesn’t look too far off, as gold has been touching and passing the $1,810 level throughout the previous trading week.

Michael Howell, CEO of Crossborder Capital, expressed very similar opinions, stating that investors should look for diversification and pegging gold as the one asset that is guaranteed to keep climbing. Like Novogratz, Howell said that stimulus programs are the best news that the gold market could receive, forecasting a climb to $2,500 within the next 18 months.

Along with being exceptionally well-positioned in both the short and long-term, a deeper analysis suggests that gold’s price should already be much higher. Peter Boockvar, an analyst at Bleakley Advisory Group, places gold’s inflation-adjusted all-time high at around $2,600 when taking into account the metal’s 1980 high of $850. Boockvar, too, believes this price adjustment is well on its way.

Is the Fed About to Become a Major Gold Buyer?

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Due to a new round of fiscal stimulus and waning global confidence in the dollar, Guggenheim’s Scott Minerd argues the Fed may resume buying gold in a big way.

In a recent note, Scott Minerd, chief investment officer of Guggenheim Investments, outlined a possible scenario that could manifest as a result of the Federal Reserve’s massive pandemic-related stimulus. The U.S. dollar has held a tight grip on its status as a global reserve currency over the past few decades, yet recent years have seen talks of that status potentially being usurped by another sovereign in the not too distant future, with the Chinese yuan as perhaps the most aggressive candidate.

Minerd doesn’t believe that the greenback’s place as the reserve currency has been placed into question so far, but he already sees concerning signals in the form of the dollar losing its market share. These are a clear result of the Fed’s attempts to deal with a massive government deficit while also staving off a recession.

In his note, Minerd expanded upon a sort of vicious cycle that the Fed could soon find itself in. As the CIO explained, the Fed’s current rate of asset purchases is outpacing the rate of bond issuance, and the central bank is likely to try and solve this problem by upping its asset purchases to a massive $2 trillion annually.

Although the Fed’s recent pumping of trillions of dollars into the economy represented the biggest stimulus to date, Minerd thinks that an official (and even greater) quantitative easing (QE) program is on the way. With a budget deficit exceeding $3 trillion and the Fed’s commitment to boost the economy at any cost, Minerd expects the central bank to keep interest rates zero-bound for a minimum of five years, if not longer.

Needless to say, any environment of low or negative interest rates greatly benefits gold, and the yellow metal has been reaching all-time highs in numerous countries whose central banks have adopted similar policies. But there are more reasons why gold could be the refuge investors need moving forward. A commitment to zero rates, especially over a protracted period of time, would likely raise inflationary expectations and potentially pave the way for a sudden spike in inflation.

Along with weakening the greenback on their own, intrusive measures such as these could reduce confidence in the dollar and intensify speculation in regards to its place as the reserve currency. In return, the Fed could attempt to offset its risky policies by accumulating even more gold, despite its reserves already far exceeding those of any other central bank. As Minerd notes, the historic tendency of sovereign nations to hoard gold in order to maintain economic leverage is well-documented, and Minerd would not at all be surprised to see the Fed becoming a major gold buyer in the near future to avoid losing dominance on the global stage.

Gold Stands to Soar in Midst of “The Great Lockdown”

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Global economic growth is projected to fall below -3% this year, and it’s exactly why Frank Holmes argues that more people must own gold. See his argument here.

As Forbes contributor Frank Holmes points out, “The Great Lockdown” isn’t just a colloquialism used to describe the current state of affairs. It is a term that the International Monetary Fund (IMF) itself has come up with to describe the economic picture, along with such dismal outlooks as predicting that the world is headed towards the worst recession since the Great Depression. And, with global economic growth projected to fall below negative 3% this year, they have no shortage of data to back up their forecast.

To Holmes, this is a wake-up call that signals it’s time for every individual to focus on preserving their savings. As evidenced by the action in the gold market so far, plenty of people around the world have indeed recognized this ominous signal. Gold has climbed roughly 13% so far this year and quickly made precious metals one of the best-performing asset classes. A look into this month’s top searches on search engine also shows that gold has piqued more interest than it has at any point over the past decade, including when the metal reached its all-time high of $1,900 in 2011.

With its exceptional performance thus far, many experts and analysts have been calling for prices that even the bullish forecasters wouldn’t have dreamt of a year or two ago. Bloomberg commodity strategist Mike McGlone recently noted that gold seems to be aiming for a reversion of its long-term mean versus the S&P 500 Index, a move driven largely due to the unprecedented amount of monetary stimulus currently taking place. If true, gold would undoubtedly move on to new highs, with Holmes highlighting a range of $2,800 to $3,000 based on the S&P 500’s current mean.

Perhaps the most notable part of this analysis, however, is that a mean reversion of this kind is far from a hypothetical scenario. In May 1990, gold and the S&P 500 were both trading inside a range of 330 to 360. For a more recent example, March 2013 also saw gold and the S&P 500 trade within a 1,500 to 1,600 range, a roughly one-to-one ratio. This makes the scenario of gold climbing to $2,800 and above in the short-term a very realistic possibility backed by historical precedent.

Yet despite the clear flock to gold and extremely bullish indicators such as this, Holmes thinks far too many people remain severely underweight on the metal. A study done by the World Gold Council (WGC) last year showed that commodity indices have a minimal gold weighting, meaning that investors whose exposure through gold comes by way of funds only receive a meager amount of benefits from an outperforming asset.

Instead, Holmes recommends a much more direct approach to owning the metal, one that involves at least a 10% allocation within a portfolio with a sizeable emphasis on physical gold. While some people might feel as if they already missed their entry point due to the strength of gold’s gains so far, Holmes notes that both price forecasts and economic predictions suggest that this is far from the case.

The Simple Reason Gold Fell with Stocks Last Week

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Although most assume that gold would have surged, this is not without precedent, with past cases resulting in massive upside for gold prices. See why here.

As the coronavirus crisis worsens throughout China and the rest of the world, the global market has seen its sharpest decline since the 2008 financial crisis. Virtually all equities plunged last week as traders rushed to dump their assets in favor of cash, with the Dow losing as much as 3,600 points within the week.

Some analysts found it curious that gold and silver prices also fell, with the metal dropping from about $1,640 to the $1,560 range during Friday’s trading session. Gold is known for its hedging properties and generally prospers as a consequence of stock selloffs, making the parallel action come off as unusual.

Yet upon closer inspection, one can see that a mutual selloff in both markets is not without precedent, and that similar cases in the past have resulted in massive upside for gold once the dust settled. Last year, much was said about the peculiarity of gold moving up together with stocks, considering the latter are seen as the metal’s biggest competitor. As gold kept climbing, however, it became clear that the metal’s numerous drivers and sturdy fundamentals were powering the gains as opposed to sentiment.

As various experts have explained, the precious metals selloff shouldn’t be of particular concern to gold investors as a massive wave of panic has taken hold of the markets. Peter Spina, president and CEO of GoldSeek.com, pointed out that some of the selling is a result of a general selloff by large funds, which recently increased their positioning in the gold market by a wide margin. Likewise, Peter Grant, vice president of precious metals at Zaner Metals, pointed out that the threat of contagion has significantly hampered physical transactions in China and India, two of the world’s biggest buyers whose bullion investors tend to favor in-person purchases.

Brien Lundin, editor of Gold Newsletter, noted that silver’s decline is also tied to diminished industrial demand, as the coronavirus has impacted both the commodity and energy markets. The already-skewed gold/silver ratio has now climbed above 95, exceeding last year’s peak and nearing its all-time high.

Despite the selling pressure from the past few days, there are good reasons to be excited about gold prices moving forward. Lundin pointed out that this kind of price action is part and parcel of any global crisis, as central banks invariably respond to damaged economies by introducing massive amounts of stimulus. The 2008 financial crisis, which ended up moving gold prices to all-time highs, was an example of investors recognizing that loose central bank policies are causing just as much damage to the economy as the crisis itself.

As in 2008, Lundin expects multiple rate cuts, quantitative easing and increased government spending in response to the crisis. Given gold’s tremendously positive response to successive and unexpected rate cuts in 2019, Lundin predicts that the coronavirus crisis will ultimately prove far more beneficial than detrimental to the precious metals market, adding that prices could retake their upwards trajectory with much greater vigor in the coming weeks and months.

Gold Settings Its Sights on $1,900

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The yellow metal is up about 20% in the last year, but at least one analyst says that it will soon go much higher. Here’s why he thinks it may set a new record.

In a recent interview with Kitco, Peter Reznicek, head trader at ShadowTrader, spoke about the extremely bullish signals that gold has been sending over the past six months. The metal is currently riding on six-year highs, oscillating in a narrow trading range above last year’s high of $1,553.

While the jump of roughly 20% in gold prices over the past year  has enticed many investors, Reznicek says that the price spike is merely the beginning of something very exciting in the market. The veteran trader explained that he favors long-term charts and, when assessing gold, looks as far back as two decades ago to get a better idea of where the metal is headed.

Observing the market from this perspective, Reznicek found it clear that last summer marked a breakout from a prolonged range bound pattern. While some view gold’s retracement from the $1,600 level as a sign that the metal might be moving too fast, Reznicek isn’t the least bit concerned and assures investors that gold is on a clear upwards trajectory.

As Reznicek points out, gold prices soared around mid-2019 before moving sideways over the next couple of months, which is a bullish sign in and of itself. Gold’s strong positioning above last year’s highs suggests that the metal is enjoying excellent support around current levels and could be one or two drivers away from a major breakout.

Reznicek has little doubt that gold bottomed out ahead of the summer price jump and that, from a longer-term perspective, the metal is preparing to shoot far above current levels. Having been bullish on gold for some time, Reznicek unequivocally advised investors that long gold is the position they want to be in right now.

In terms of price levels, Reznicek pointed to $1,613 as the next key resistance level that gold shouldn’t have a hard time breaching. Over a slightly longer period, Reznicek said that gold investors should keep an eye out for the all-time high of $1,900 as a very reachable level, while leaving open the possibility that the metal could end up even higher in the near future. Reznicek’s prediction echoes that of several other guests on Kitco’s show, many of whom are predicting that gold will indeed recapture levels last seen in 2011 and possibly leapfrog them.

Speaking about short-term drivers, Reznicek singled out the coronavirus as a potentially important tailwind for gold. Although the trader feels that the outbreak hasn’t influenced the gold market to a significant degree thus far, he noted that any significant market disruption related to the virus would definitely play into gold’s favor.

Interest Rates Just Dropped From 20% To Zero – What Happens From Here

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THE FEDERAL RESERVE HAS 18 TRILLION REASONS WHY THEY CAN’T SEND INTEREST RATES HIGHER. WHAT HAPPENS TO OUR SAVINGS WHEN THE BUBBLE FINALLY BURSTS?

rob with fountain pen Interest Rates Just Dropped from 20% to Zero – What Happens From Here?

L. Todd Wood

For the past several decades, bond yields have grinded lower and lower, now reaching effectively 0%. Yet despite such a decline, there has been a lot of talk in the financial press of a growing bubble in the market.

[Read more…]

Is Europe’s $1.28 Trillion Economic Plan A Recipe For Disaster

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BY FOLLOWING THE FEDERAL RESERVE’S LEAD AND FLOODING THE ECONOMY WITH MONEY, HAS THE EUROPEAN CENTRAL BANK AVERTED ITS “DAY OF RECKONING”… OR DOUSED MORE FUEL ONTO THE FIRE?

mario draghi ecb qe Is Europes $1.28 trillion economic plan a recipe for disaster?

From Filip Karinja

Here we go again – only this time, in Europe.

This past Thursday, Mario Draghi, president of the European Central Bank (ECB), announced that the ECB will launch its own Quantitative Easing program in March, purchasing €60 billion ($67 billion) in government debt each month. [Read more…]

This Will Not End Well

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WITH THE U.S. GOVERNMENT PULLING THESE TWO CRITICAL SAFETY NETS FOR THE ECONOMY, THE WRITING ON THE WALL FOR YET ANOTHER CRASH SEEMS FAR TOO APPARENT.

this will not end well This will not end well!

From L. Todd Wood

I was a fairly new employee on Wall Street, a decade and a half ago. I had only been trading about five years but I clearly remember when Sandy Weill, the architect of Citigroup, walked in my office to rally the troops during a management visit. Jamie Dimon, the currency CEO of JP Morgan Chase, dutifully followed behind with a clipboard, taking notes from the master.

[Read more…]

Jim Cramer Explains Why You Need Gold As Insurance

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BEST-SELLING AUTHOR STATES THE SIMPLE CASE FOR WHY EVERY AMERICAN NEEDS SOME GOLD TO PROTECT THEIR SAVINGS.

jim cramer gold insurance Video: Jim Cramer Explains Why You Need Gold as Insurance

Does your portfolio have an insurance policy?

If you’ve never considered having an insurance policy for your stocks, Jim Cramer is encouraging you to think again. According to the best-selling author and host of the CNBC show, Mad Money, “everyone should have one.” After all, “you won’t own a home without home owner’s insurance; you won’t own a car without car insurance.” And that’s exactly why your portfolio also needs insurance – something to tide you over when things threaten to go bad.

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Could Low Gas Prices Really Pose This Threat To Your Savings

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IF YOU THOUGHT THERE COULD BE NOTHING WRONG WITH PLUMMETING GAS, YOU MAY BE SURPRISED BY HOW MUCH YOUR SAVINGS ARE TIED TO THE SUCCESS (AND FAILURE) OF BIG OIL.

low gas prices Could Low Gas Prices Really Pose This Threat to Your Savings?

From Rachel Mills

After November’s midterm elections, we had been waiting with bated breath for gas prices to rise again. After all, they usually seem to dip and surge around elections. Or maybe that is only how it seems some years. Memory can be so selective.

But this time the surge in prices following the election hasn’t happened. We suggested to readers, tongue-in-cheek, to fill up their tanks on the way to the polls in anticipation for that post-election upswing, but instead, prices have kept falling. And so, instead of behind-the-scenes forces struggling to manipulate prices downwards for the benefit of the political class, it seems instead that something else is going on. [Read more…]