Gold Rises on Inflation, Exhaustion of Stock Market Optimism, and This

Gold Rises on Exhaustion of Stock Market Optimism, Fears of Inflation, and This
Photo by Sabrinna Ringquist

Sentiment from both Wall Street and Main Street has gotten progressively more bullish on gold over the past few weeks, and with good reason. Gold has now posted its third straight week of gains and appears to be looking for another resistance level to breach.

The metal’s move past, and stay above, the important $1,800 level has been in focus for many. Friday’s trading session had it inching towards $1,830 before closing the day above $1,810 in yet another example of bullish action that has been on full display for nearly a month.

Gold may drop before it launches much higher: Newton Advisors

Newton Advisors’ founder Mark Newton says that, from a broader standpoint, gold’s price could experience another significant dip below $1,750 that would let investors get in on the action. Newton told CNBC that this is because June and July are traditionally the weakest months for gold in a year, making the latest run all the more impressive.

Regardless of whether gold experiences such a pullback, Newton says $1,855 is the next level to watch out for and that breaking it will most likely have gold pushing towards new highs. The gains over the past weeks came in good part over doubts that the global economy will recover as some optimistic forecasts are claiming.

Inflation is only the second most-important issue: Mobius Capital Partners

It can also be interpreted as an exhaustion of optimism in the more risk-on markets, a stance that was very much prominent heading up to June. Seasoned investor and co-founder of Mobius Capital Partners Mark Mobius believes that the narrow focus on inflation has actually sidelined a much bigger problem.

As investors and people worry about prices of goods and services rising, many of them forget that the true cause of this is currency devaluation, said Mobius in a recent interview. Mobius is one of a number of prominent experts who doubt in the accuracy or even altogether relevancy of the CPI as an inflation gauge.

While the CPI rose this year at its fastest pace since 2008, Mobius says that it leaves too many factors out and that prices are actually rising much more rapidly. The spike in prices, says Mobius, is the result of a currency losing its value, as has unfortunately been the case throughout history. This is why companies treat any spike in inflation as currency debasement, and why gold is likely to come into prominence as a store of wealth over the coming months.

Mobius’ comments over currency devaluation come during a time when the U.S. dollar faces some of the biggest threats to its status in a long time, partly due to money printing and balance sheet expansion and partly due to a broader loss of faith in fiat. In general, Mobius expects gold to continue moving up along with inflation, especially since central banks are actively targeting it instead of attempting to deflate their currencies as part of standard policy.

Wall Street, Main Street Bullish on Gold

Wall Street sentiment regarding gold’s price trajectory is shifting to the upside in considerable fashion, joining the already-optimistic Main Street traders. The Kitco gold price survey from last week showed 69.2% of Wall Street analysts surveyed expecting prices to move higher this week. No bearish votes were cast, with the remaining 30.8% predicted a neutral or sideways-only price movement.

Main Street was a bit more evenly spread, though still heavily favoring the upside. Nearly half of retail investors surveyed (49.6%) forecast higher prices this week, while 25.8% were bearish and 24.6% were neutral.

Despite little price action last week, analysts generally agree that a move to the $1,750 support level will be met with a strong correction, while a breach of the $1,800 level will continue to establish new highs for the metal.

Specific analyst commentary on gold in the short term

Marc Chandler, managing director at Global Forex, views a scenario where gold touches $1,750 before bouncing to the $1,800-1,815 range this week as the likeliest.

Kitco’s senior analyst Jim Wyckoff also finds the range important, noting that a move above $1,800 would set the trend for prices to go higher.

RJO Futures senior commodities broker Daniel Pavilonis is especially focused on a close above the $1,820 level. If it happens, Pavilonis thinks the market could be in for some explosive price action. Besides gold finding consistent support above the 200-day moving average, Pavilonis also said that the latest bout of strength in the U.S. dollar appears to be exhausting.

Colin Cieszynski, chief market strategist at SIA Wealth Management, is also notably bullish on gold. Cieszynski pointed to strong technicals as a reason to believe that gold might be getting ready to break out from the aforementioned range and continue moving up.

How is recent news affecting gold?

In general, the lack of any notable rise in gold price has been attributed to mixed signals from the Federal Reserve and corresponding data. The dollar continues to hold ground amid both peak inflationary expectations and rising inflation across the board. The latest data reports were likewise a mixed bag, with better-than-expected U.S. non-farm payrolls being met with a rise in unemployment.

The data still fell short of optimistic forecasts, however, and both Treasury yields and the greenback fell after the report. Analysts also noted that a lower trading volume on Monday due to the 4th of July holiday in the U.S. could result in some additional delays before gold finds a spot above $1,800.

Short-term vs. long-term views

Although analysts do enjoy attempts to predict the future, if you don’t work in the financial news industry, you’re probably better off keeping your eye on the horizon. When you look at gold’s performance over time, that’s when it really begins to shine.

Buy the Dip While Panic Selling in Gold Lasts

Buy the Dip While Panic Selling in Gold Lasts

Gold has always been prone to bearish Wall Street sentiment and investor overreactions, and this was perhaps on full display after the latest Federal Reserve meeting. Optimistic GDP forecasts and hints at interest rate hikes in 2023 and onwards sent gold tumbling to a two-month low, with weekly losses above 5% percent. Yet, as usual, the drivers of the move downwards are questionable at best.

Adrian Day, president of Adrian Day Asset Management, said that the Fed meeting was actually bullish for gold upon closer inspection. He expects prices to bounce back in the short-term. Day notes that the Fed chair essentially said the government wants to rein in its loose monetary policy, but doesn’t have a way of doing it. This is clearly demonstrated by their inability to hike rates for at least two more years.

Day believes a lot of the selling was automated on some level and that investors will soon return to their previous bullish outlook.

Colin Cieszynski, chief market strategist at SIA Wealth Management, said that markets were looking for an excuse to rebalance from technically overbought gold and oversold U.S. dollar, and that the Fed meeting was just that.

Cieszynski said that it wasn’t so much the Fed’s projections that caused the pullback, but rather the signal that officials are looking for a way to tighten monetary policy. While the statement alone was enough to send the markets selling, Day is among the numerous experts who don’t see any feasible way for the Fed to either tighten its monetary policy or subdue inflation.

The latter has been an especially prominent talking point as of late, with core and consumer inflation rising at their fastest pace in over a decade and consensus forecasts that more inflation is coming. Phillip Streible, chief investment strategist at Blue Line Futures, said that his firm has been waiting for an opportunity to buy gold.

Streible said his company has already started buying the dip, noting that they are positioning themselves for higher inflation accompanied by weaker-than-expected growth later in the year.

Last week’s Kitco News Weekly Gold Survey of 18 Wall Street analysts showed that 56% were bearish on gold in the short-term, with bullish and neutral sentiment tied with 22% votes for each. A Main Street poll with 2,174 respondents showed considerably more optimistic sentiment, with 52% of voters expecting gold to bounce back this week, 31% expecting additional pullbacks and 17% voting neutral.

Gold’s Heading Up for Many Reasons. Here’s the Weirdest One

Gold's Heading Up for Many Reasons. Here's the Weirdest One

After months of sideways price action, gold appears to have resumed its uptrend, breaking out of its range and hitting a high just short of $1,890 during Friday’s trading session. With upwards momentum looking strong and the 200-day moving average passed, some are wondering what caused gold’s breakout after a fairly tepid few months. This time, the usual suspects are joined by an unusual trend that just might be the primary cause…

Inflation and dollar weakness

According to the World Gold Council, the price rise is the result of inflationary concerns, with the CPI jumping by 4.2% year-on-year in April. Commodity prices are soaring, which drives up the producer price index and increases consumer costs on virtually everything from food to homes.

In addition, the trillions of newly-printed dollars are still a primary concern for most investors. Thanks to three rounds of free money, spending has recovered so a lot of those dollars are chasing a limited quantity of goods, driving prices higher. with inflation already materializing on one front and warnings of a lot of more to come on another.

JPMorgan reports big institutional investors dumping “digital gold” for the real thing

Some experts view the recent cryptocurrency “correction” (which seems like too subtle a word to describe a 7-day 40% plunge) as the real reason behind gold’s recent price gains. Bitcoin was praised as an inflationary hedge due to its fixed supply and, in fact, was invented primarily as a counterweight to central bank malpractice after the 2008 financial crisis.

But the recent double-digit percentage correction in the market reminded investors looking for a hedge that the crypto market is, and has always been, a highly volatile one.

While bitcoin provides hedging utility, its price volatility absolutely boggles the mind. This is where gold emerges as a familiar, reliable and most of all stable asset, as an overnight double-digit percentage pullback would be virtually unheard of in the well-established market. That’s probably why JP Morgan’s report of big institutional investors choosing stable hedging with gold over volatile hedging with bitcoin.

That might be a partial explanation of our unusual fund flow report…

Paper gold funds bucking the price trend

As seen on Chief Investment Officer, Tom McClellan offers a curious take that even the keen analyst might have overlooked.

McClellan notes that spikes in gold prices are usually followed by massive inflows into large gold funds. It’s the same pattern you see in stocks: once a stock has proven it’s a winner by going up, everyone wants a piece of the success, so they buy. It’s a human reaction. It’s the closest thing to a law of investing there is.

This time is different. Despite a major upward move in gold’s price, two of the biggest gold funds (SPDR Gold Shares, GLD and iShares Gold Trust, IAU) have not gained buyers. They have not seen the kind of cash inflow that always seems inevitable when prices go up. What’s going on?

McClellan interprets this as investors still not having woken up to the goings-on in the gold market, perhaps due to the hectic economic situation affecting all other markets. This could also be seen as investors uncharacteristically holding out for further developments before making a move, which doesn’t sound bullish on its own.

McClellan explained the potential benefits of the situation this way:

The uptrend is not mature yet. It still has more to go, before we get to the point when everyone starts piling in.

“Piling in” in this case means buying paper gold, which drives up gold’s spot price, which in turn tends to attract paper gold buyers… Basically the kind of feeding frenzy that has the potential to send prices skyrocketing.

Given that gold has already broken out to the cusp of $1,900, the kind of acknowledgment and subsequent piling into funds that McClellan hints to would quickly translate to fireworks in the gold market.

If McClellan’s idea that gold’s uptrend has just started gaining traction towards $1,900, on the way to its previous all-time high, the smart investors who hold gold have plenty to be excited about.

Gold’s Perfect Storm Is On the Horizon

Gold's Perfect Storm Is On the Horizon

The when, why and how regarding gold’s “perfect storm,” or the appreciation of an asset that many consider to be severely undervalued, is a matter of frequent debate. Mining.com’s Richard Mills believes the forecast is clear, the clouds are building, and lightning is striking closer than ever. Rising gold price will be driven by protectionist policies spearheaded by China, the likelihood of a major inflationary bout, low rates, negative yields, supply gluts and tensions.

The multiple fronts of the perfect storm

That’s quite a basket of factors, and China’s movements as of late have perhaps been of the biggest interest to some. In short order, the Asian nation has brought 150 tons of gold bullion into its country and launched a digital yuan that some believe could at some point be tethered to gold. While it might not be in China’s interest to dump the U.S. dollar as it holds over $3 trillion in its reserves, it might very well look to take the greenback’s spot as the world’s reserve given the opportunity of a banking meltdown or a currency crisis.

Having a gold-backed digital yuan would ideally position it for such a role at a time when the amount of money pumped into the U.S. economy almost echoes hyperinflation. How and when this pent-up cash will be unleashed hasn’t yet been laid out, but consumer prices are already spiking across the board, and a nearly 30% expansion in M2 year-to-date hardly means good news for the free-floating dollar.

Central banks stockpiling gold

It should come as no surprise, then, that countries around the world are stockpiling gold with various stated goals that can best be summed up as a need for solid backing. The 650 tons of gold bullion bought by central banks in 2018, and a repeat in 2019, was then seen by many as de-dollarization, but there appear to be plenty more layers to this story as the official sector returns to net buying. The supply, on the other hand, is lacking.

World’s gold production falling

A World Gold Council report showed that last year’s gold supply fell by 4% compared to 2019, with production likewise dropping by 4%. While the production losses were attributed to the crisis, Mills points out that data released by top miners shows that gold output between 2019 and 2021 could be marked with a further 9.5% decline.

Speaking of declining…

Declining and subzero bond yields make gold a preferred safe haven

The piling into gold as a safe-haven asset by investors and central banks alike has also been bolstered by the fall of the bond market. For all the criticism that the U.S. Treasury gets for having a 1.5% 10-year yield, 2.26% 30-year yield and a negative 1.1% real yield, it stands as one of the few sovereign bonds that actually offer a yield at all. For comparison, on the date of publication, here are the 10-year bond yields among several of the world’s other leading reserve currencies:

  • France: 0.084%
  • Germany: -0.25% (French and German yields quoted as proxies for Euro zone)
  • Japan: 0.077%
  • U.K.: 0.759%
  • Switzerland: -0.259%

The bond market’s sharp decline began in 2019, and many analysts believe that portfolio managers will grow to adopt gold in a reassessment of what offers a safe return of capital rather than a return on capital.

While there are various geopolitical tensions that could bolster gold’s appeal, the trade war between the U.S. and China will likely prove to be by far the biggest red flag, as the latter appears bent on diminishing the dollar on the global stage and placing itself as a reserve alternative. And, by printing trillions of dollars out of thin air with only hope backing them, the Federal Reserve will likely end up as an accomplice in any such bid.

These are all the factors of gold’s perfect storm Mills sees on the horizon. Only time will determine if this ominous forecast portends a brief squall or a hundred-year flood.

“Gold as an Inflation Hedge” to Push Gold Price to $1,850: Scotiabank

Gold as an Inflation Hedge to Push Gold Price to $1,850: Scotiabank

In their monthly commodity report, Scotiabank went over their expectations for gold and silver in the face of what they refer to as the best economic growth in 40 years. This, of course, refers to the bank’s forecasts that the U.S. economy will expand by 6.2% this year and 4.4% in 2022.

Economic Forces Driving Gold Higher

These figures would normally be staggering, yet context is very much a key factor in this scenario. A growth of this magnitude has only been made possible in the form of a rebound from what most agreed was the biggest blow to the U.S. economy in the last century. Unsurprisingly, investors have been quick to adopt positive sentiment and have pushed both bond yields and the U.S. dollar higher, creating tremendous short-term pressure for gold.

Nonetheless, as gold price bounced back-and-forth between the $1,700 level, it pays to reassess the foundations on which the rebound, as well as the supposed growth, lie. To facilitate a recovery, the Federal Reserve had to commit to a zero-interest-rate policy along with pumping trillions of dollars into the economy. How soon and in what way this prolonged loose monetary policy will affect the nation has been the subject of plenty of speculation, but inflation seems to be on the mind of even the most optimistic market participant.

The newly-printed dollars have to go somewhere and wind up debasing the currency, and many economists believe that the effect could be felt the hardest in the form of a sudden inflationary spike. The general consensus is that prices for all base goods will see a considerable rise over the next five years. (In other words, inflation.)

$1,850 Average Gold Price per Ounce in 2021

In good part because of this, Scotiabank’s team is sticking to the average $1,850 gold price forecast for both 2021 and 2022. While the bank projects strong economic growth around the world, the ongoing negative developments surrounding the health crisis leave much to be desired in terms of certainty. It also pays to notice that countries around the world were reporting stagnant or contracting growth ahead of the crisis, with Germany’s manufacturing sector being just one example.

Regardless of how global growth unfolds over the next two years, Scotiabank sees silver as an investment that is poised to appreciate even more than gold.

Scotiabank’s Case for Silver

In the event of another flare-up, silver is well-positioned for a flock to safe-haven assets such as the one seen last year.

While manufacturing activity was contracting in 2019, industrial demand for silver was growing due to a heavy push for green energy, and it is also something that the Biden administration has emphasized. Silver is a critical component for solar panels, and also has eco-friendly uses in high-capacity batteries, water purification and electronics manufacture.

If the manufacturing sector indeed recovers as sharply as Scotiabank forecasts, silver stands to gain significant support so long as nations’ economies grow, and even more so as the developed world pivots toward a lower-carbon footprint.

2021: Deficits, Inflation, Overvalued Stocks Drive Gold Higher

In 2021 Deficits, Inflation, Overvalued Stocks Drive Gold Higher

The factors that drove gold to a new all-time high of $2,067 last year are well-known. The unprecedented amount of global panic caused a flock towards precious metals, one that had just as much to do with reactionary government policies as the crisis itself. Over the span of 12 months, gold gained around 25% while silver topped a seven-year high and became the main item on many a watchlist. In their Gold Outlook report for 2021, the World Gold Council (WGC) stated that it expects gold to post an almost as strong of a performance this year due to a combination of new and existing tailwinds.

Inflated stock valuations are a boon for gold

According to the report, the stock market is again shaping up to be a massive red flag. Long before the crisis hit, many experts were warning that equities’ valuations are overblown and that the longest bull run in the market’s history is slated for a correction, if not an altogether crash. The WGC points out that the S&P 500 price-to-sales ratio is at historic highs, yet also likely to expand further.

Near-zero bond yields send investors to gold as a safe haven

With the effective elimination of most sovereign bonds from portfolios, investors will now look to take on a more risk-on approach in search of gains, said the WGC. The renewed appetite for risk will also be powered by optimism in regards to a rapid global economic recovery after one of the worst slowdowns over the past century. The increased reliance on dubiously-valued stocks is likely to bring on strong pullbacks and market swings. While this turbulence alone is beneficial to gold, the metal is likely to receive even more support as higher risk will place more emphasis on hedging, especially in the absence of bonds that formerly fulfilled this role.

Inflation fears and inflation-resistant assets

Though not yet materialized in substantial form, inflation has been on the mind of every market participant ever since the government decided to expand the money supply with an unseen multi-trillion dollar stimulus. With the Federal Reserve and the European Central bank both stating their willingness to allow inflation to run past the targeted rate of 2%, the WGC’s report notes that gold prices increased by 15% on average during years where the inflation rate exceeded 3%. Of course, inflationary policies are just one of gold’s government-backed tailwinds, with ballooning budget deficits and the aforementioned normative of low to negative-yielding debt acting as pillars of support on their own.

Overseas gold demand increases

While last year’s demand for physical gold reached sky-high levels on one side, it was subdued from another as economic activity from the world’s top gold consumers slowed. The WGC expects this to change in 2021, projecting that consumer demand for gold from both China and India will return to form. The report cites data from the Indian Dhanteras festival in November as evidence that jewelry demand is already well on the track to recovery, having bounced back from the Q2 lows.

Central banks influence gold’s price

In contrast to 2018 and 2019, two record years in terms of central bank purchases, the WGC’s report forecasts a change in dynamic. With gold prices being near all-time highs, central banks could alternate between buying and selling, along with purchases no longer being widely spearheaded by Russia. Nonetheless, the WGC says that the official sector will continue to offer strong support for gold in the ever-growing bid to diversify foreign reserves, especially during a time of questionable fiat.

Gold’s 2021 Price Rises on Firm Footing

Gold's 2021 Price Rise on Firm Footing

The flow of institutional gold in November may have caused some market watchers to reminisce of gold’s run between 2008 and 2013, one that saw the yellow metal reach a new all-time high in 2011 before a fairly sharp decline. After a lengthy absence, institutions jumped into the gold market with record purchases this year due to unprecedented uncertainty, only to reduce their holdings by a substantial margin on what looks to be improved sentiment (the release of a COVID-19 vaccine and an anticipated surge in customer spending).

Yet little has changed in terms of gold’s fundamentals and, as Friday’s trading session showed, in terms of gold’s price movement. Despite the large institutional outflows, gold hit a high of $1,890 on Friday, not too far off from the $2,070 peak set in August. According to State Street Global Advisors’ George Milling-Stanley, there aren’t too many reasons to compare gold’s current run to that of a decade prior, aside from the bullish prospects themselves.

Why is gold’s bull run different this time?

In a web seminar hosted by the firm, the chief gold strategist elaborated upon the differences between the two bull runs and why gold investors have more cause for optimism than concern heading into 2021. Milling-Stanley described gold’s last run as frothy in regards to investors chasing gains, though he nonetheless noted that it helped establish a new price range for gold, moving the metal from around $250 to $1,000.

Adam Perlaky, manager of investment research at the World Gold Council who also participated in the seminar, outlined a key point to look out for when anticipating gold’s movement over the coming years. Previously, portfolio managers have held steadfastly to the 60/40 stock/bond allocation while paying minimal attention to gold.

The safety that bonds once offered, however, is now highly questionable at best if not gone altogether. Sovereign bonds around the world are now yielding zero to negative interest, and with increasingly loose monetary policies accompanied by debasement of fiat currencies and mounting debt, the bond market is only expected to worsen. We simply can’t expect government bonds to keep pace with inflation in this interest rate environment.

Gold shines brightest at 10% allocation

This ties into Milling-Stanley’s separation of gold’s current bull run to that of 2011, as gold began truly gaining traction last year long before the pandemic was even mentioned, being given a massive push by worldwide slicing of interest rates and a subsequent dearth of safe-haven assets.

Whereas most institutions previously held a 1%-2% gold portfolio allocation at most, analysts are now expecting fund managers to increase this allocation to 4%-5%. Milling-Stanley believes institutions could look to increase their portfolio allocation to gold to as high as 10% in what will turn out to be a broad reassessment of hedging. According to State Street’s research, a 10% allocation to gold offers the optimum advantage against inflation risk and market volatility while still showing the greatest returns.

Needless to say, even the more conservative prediction of a +2%-3% increase in institutional gold holdings bodes extremely well for gold prices considering the trillions of dollars of investment capital involved.

While both experts note that vaccine developments have given way to some risk-on sentiment, the latter is expected to remain subdued considering the broader economic picture. Perlaky notes that the global economy has never encountered anything resembling this year’s pandemic, the full effects of which are still to be revealed.

To Milling-Stanley, gold’s pullback from August’s levels represents a healthy correction from what were at the time perhaps overbought levels. This should help the metal better prepare for the next leg of a lengthy bull run that could see it push to $2,300 sometime next year.

Despite Comparisons, Gold and Bitcoin “Fundamentally Different” Stores of Value

Despite Comparisons, Gold and Bitcoin Fundamentally Different Stores of Value
Freepik images

Both gold and Bitcoin offer a way for savers to preserve wealth from inflation. Despite the recent Bitcoin frenzy that generated many comparisons between Bitcoin and gold, see why only one of these assets lets its owners sleep well…

The unprecedented levels of panic and uncertainty this year have brought forth a push for safe-haven assets that is likewise difficult to match. Gold posted consecutive all-time highs, pulling other precious metals along the way, as it climbed to $2,070 in August amid risk aversion and red flags from all corners.

The drive to find a safe-haven to not only store wealth but also protect one from various downturns has also reinvigorated the cryptocurrency market, bringing Bitcoin not too far off from its peak of nearly $20,000, last seen in December 2017. Three years ago, the comparisons with Bitcoin and gold were just as present as today. Writing on FoxBusiness, Jonathan Garber speaks with many analysts who argue that both assets hold no counterparty risk and offer investors a unique diversification opportunity.

Gold and Bitcoin “fundamentally different”

Yet as tempting as it may be to compare the two, they remain fundamentally different and will continue to fulfill different roles. As Peter Schiff, CEO of Euro Pacific Capital notes, Bitcoin’s primary purpose remains that of a currency, or rather an alternative to fiat ones. The token was created in the wake of the 2008 financial crisis to offer people a method of exchange that would be free from money printing and other forms of central bank manipulation.

Although many have since grown to view it as a store of value, Schiff points out that Bitcoin remains fundamentally tied to its currency status. Unlike gold, it doesn’t play an important part in jewelry and manufacturing, and its flexibility and utility are largely tied to the virtual sphere. In contrast, gold requires no internet connection or validation to either be used as payment, purchased or traded.

Ray Dalio, founder of the $98.9 billion Bridgewater Associates fund whose frequent outperformance has much to do with its big bets on gold, also hesitates to make comparisons between the two assets. In a recent tweet, Dalio highlighted Bitcoin’s infamous volatility and said that it makes the case for the token’s preservation of purchasing power more difficult to make.

Bitcoin’s volatility vs. gold’s stability

Bitcoin’s price swings may have brought gains to many, but its tendency to have abrupt downturns has caused just as much worry. While the top crypto has posted a nearly full recovery from its 2018 low of $3,200, such falls have and continue to trouble investors with a long-term outlook.

On the other hand, gold’s stability has always been one of its hallmarks, if not the most important one. Whereas 10% oscillations in the price of Bitcoin are a frequent overnight phenomenon, gold is exceptionally resilient to sharp downturns, yet also able to post massive gains during times of crisis. Even in its most bearish periods, gold continues to be an asset no investor would mind owning. Particularly in the case of physical gold, one can liquidate the asset at any moment and in any corner of the world without issue and receive most of their initial investment, if not more. This has been the case for centuries, and it’s difficult to envision a different scenario.

With a little over a decade under its belt, Bitcoin has plenty of miles to walk before it can offer its holders anything close to the sense of safety and security that gold does.

Gold’s Rally Just Getting Started, Say Numerous Analysts

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.