Gold Prices to Surge 30% in 2020, Says Bridgewater Analyst

On the back of a strong 2019, one analyst sees an even better year for gold in 2020. Here’s why he thinks the metal may surpass $2,000.

In an interview with the Financial Times, Greg Jensen, the co-chief investment officer at Bridgewater, shared his prediction for gold’s trajectory in the near future. The metal had most recently shot up above $1,600, the highest level in seven years, riding on high tensions between the U.S. and Iran. And although it has retraced since then, it remains perched above last year’s high of $1,553, last seen in 2013.

As great as gold’s gains have been thus far, Jensen sees a lot more positive price action ahead. In the interview, Jensen pointed out that the threat of a military conflict with Iran wasn’t the only source of concerns, as the metal had also been appreciating steadily amid ongoing trade disputes with China.

Like other experts, Jensen thinks that trade issues between the U.S. and China are far from resolved and will continue to prompt safe-haven buying, adding that the conflict with Iran likewise hasn’t fully simmered down. Furthermore, Jensen potentially sees a notable increase in geopolitical flare-ups ahead that could send gold climbing to $2,000 this year, above its all-time peak of $1,911.

Besides geopolitical uncertainty, Jensen expects central bank policies to remain supportive of gold, just as they had been in the second half of 2019. The metal began its steady climb at the beginning of summer, as central banks around the world suddenly turned dovish and followed in the Federal Reserve’s stead by slicing interest rates, which is generally seen as a major boon for gold. Since then, global negative-yielding debt has reached a dizzying peak of over $15 trillion, creating a dearth of safe-haven opportunities.

Jensen thinks that the Fed is likely to push interest cutting even further this year by possibly slicing nominal rates to zero in order to combat slowing growth and the looming threat of a U.S. recession, a red flag that became especially prominent in the second half of 2019. On the flip side, Jensen also sees the Fed potentially choosing to usher in a period of high inflation, giving gold another major price driver.

Jensen’s view is shared by several other notable fund managers, starting with his colleague Ray Dalio, the founder of Bridgewater. A long-time advocate of the yellow metal who favors a gold-heavy strategy for his top-performing fund, Dalio doubled down on his usual sentiment last year by urging investors to start buying gold amid what he sees as a paradigm shift with loose monetary policies across the globe. Around the same time, DoubleLine CEO Jeffrey Gundlach also stated that he is adamantly long gold due to expectations of a decline in the greenback’s value.

“Watch Gold” Among These 2020 Market Surprises

Despite being optimistic for the financial markets in 2020, one forecaster believes that gold prices may continue to rise in the new year. Here’s his rationale.

In an interview with CNBC, veteran forecaster and vice chairman of private wealth solutions at Blackstone Byron Wien spoke about his outlook for the next fiscal year. Known for his annual list of 10 surprises to look for in the market, the Wall Street expert chose to stick to tradition and withhold his predictions until January.

However, Wien did share some things regarding what to expect over the short and long term. While Wien didn’t go into his forecasts just yet, he singled out gold as a particularly interesting investment to watch for in 2020. Wien’s nudge towards gold stands out even more given the strategist’s general expectations for the coming year.

Despite geopolitical tensions and trade disputes, Wien isn’t too concerned that either will spill out into the coming months. Wien is optimistic regarding the early draft of a trade deal with China, a resolute Brexit and a simmering down of domestic political turmoil. While mostly bullish, Wien singled out a few possible risks on the horizon.

One would be the election of a candidate whose market policies radically differ from those of President Trump, which Wien thinks could end up causing significant upheaval to the economy. Another would be a scenario where the Federal Reserve gets caught by surprise inflation which, although unlikely, the stage does appear set for.

Over the longer term, Wien shared some notes about the pervasive issue of debt, including the federal deficit and the overall domestic debt. While the ever-expanding figures tend to be the eye-catchers, Wien explains that the U.S. economy has enjoyed an environment of low debt service rate. Although the national debt has quadrupled over the past two decades, the debt service has only gone up 25%. Wien finds this unsustainable and expects the market to eventually be shook by the coming of higher interest rates. On the other hand, Wien agreed with his hosts that any rise in U.S. interest rates is difficult to see in the near future, especially due to the amount of liquidity that central banks are currently working with.

Wien said that market participants are likewise preparing for a similar economic climate in 2020, a sentiment that has powered growth as of late. In contrast to Wien’s optimistic viewpoints, he pointed to gold as the asset to once again keep an eye out for. After an exceptional second half to the year, gold is up roughly 15% since the beginning of the year and has many forecasters calling for it to hit $1,600 in 2020.

The Narrative About Gold is Changing Again

Photo by Wikipedia.org | CC BY | Photoshopped

Fundamentals may be important, but one writer argues that an asset’s narrative often drives price – and he thinks gold’s current narrative is looking very rosy.

This year, gold and the U.S. dollar have moved up in tandem, which many have found to be a curious occurrence, as the two are supposed to be inversely correlated. To FX Markets’ Arkadiusz Sieron, however, the occurrence was not strange at all. As Sieron points out, in the absence of certainty, the markets will always be susceptible to sticking to whichever narrative is trending in an attempt to predict the unpredictable.

Mervyn King, a former Bank of England governor, wrote about how narratives can often completely dictate the flow of the global economy and the valuations of assets. As a particularly prominent example, King used the 2008 financial crisis to highlight how market sentiment was swayed seemingly overnight. As King notes, the buildup to the 2008 crisis was based on the narrative that excess borrowing and the housing bubble weren’t that big of an issue. As soon as the narrative changed and the status quo was no longer sustainable, a global recession broke out and asset prices were reinvented.

Despite its strong fundamentals that have held up for centuries, Sieron points out that gold is just as susceptible to market sentiment as other assets, if not more so. While the overall supply of the metal might be on a worrying decline and the global economy rests on shaky foundations, investors can still opt to favor the trending sentiment instead of hard data and ride the narrative for years on end.

Sieron singles out four main examples of how narratives dominated the gold market irrespective of fundamentals. First came concerns about inflation in the 70s that brought the price to above $600, followed by the notion that gold is a dated investment and should be pushed aside in favor of newer and better options, which went on throughout the 80s and 90s and brought the price back to nearly $200. By the end of the 20th century, however, it became clear that things weren’t nearly as rosy as they were portrayed. Concerns over mounting debt and a weakening dollar slowly pushed gold’s price up over the following decade, culminating in the metal’s all-time high of over $1,900 in 2011. From there, another narrative was ushered in, one of the crisis being behind us and the economic recovery being underway, with gold prices once again moving downwards in response.

A little less than a decade removed from 2011, however, Sieron believes that the narrative of optimism has nearly extinguished. Sieron views the metal’s spike to six-year highs this summer as the turning point of a new market trend, as investors once again grow wary of the various question marks and red flags. Yet this time, things could be different. While the era of negative yields and recessionary concerns brought in another bull market for gold, there is no way to swipe away the specter of record-high federal deficit and global debt, both issues for which there are no real solutions. This, coupled with signs that the U.S. dollar is losing its grip on the status of a reserve currency for the first time in decades, leads Sieron to believe that the newly-started bull market in gold could run indefinitely.

The Factors Behind Gold Price Resilience

Despite the recent pullback in the price of gold, this analyst outlines why the yellow metal has proven so resilient this year and why it will soon head higher.

Despite having pulled back as the year draws to a close, gold is still up more than 18% year-to-date. Forbes contributor Naeem Aslam examines the factors that made way for the yellow metal’s spectacular show of strength this year.

Aslam finds it particularly notable that gold has posted one of its best performances in recent memory alongside a climb in the S&P 500 Index. Normally, a greater appetite for risk investments translates to less interest in safety assets, but this has not been the case. A strong equity market usually acts as gold’s biggest competitor and headwind, yet investors have been keen to hedge their bets with plenty of gold.

One reason for this could be a lack of faith in the strength of the domestic and global economy. Various red flags have risen over the past few months to suggest a major crisis is on the way, not the least of which has been a Federal Reserve gauge that warned of a potential domestic recession in the near term. The disappointing US ISM manufacturing number released last week showed that U.S. factories are feeling the pressure of the U.S.-China trade war. The report joins dismal factory data from across Europe that suggests an economic contraction is underway. Aslam believes that the current state of affairs will eventually take down the labor market and that a trade deal will soon become a necessity.

Ultimately, however, Aslam finds the action on the charts to be the most telling. Gold’s technicals are currently boasting several optimistic signals, with perhaps the most significant being the formation of a bullish triangle. This move suggests gold prices could be headed above $1,650.

The drop in volatility in the gold market shows that traders have enough faith in the metal and are buying at a steady pace. Aslam notes that the reasoning behind this lies in the stock market’s conspicuous run and fears of a potential downturn.

This explains why gold has consistently returned to the $1,500 level after each dip, and Aslam sees the ability to cling to this key resistance level very much important to keep the gains going. Aslam added that momentum is clearly in gold’s favor despite happenings in other markets, and that traders are likely to keep pushing the action for the foreseeable future. With so many other factors propelling gold higher, such as global central bank rate cuts and general uncertainty, it shouldn’t be a stretch to see the $1,650 level that the chart is pointing to sooner rather than later.

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