Reasons Why Gold Isnt Going Up
In the past, Ive never been a fan of gold but right now I have bought into about every aspect possible. Gold stocks, physical gold, gold ETF, gold options and even gold crypto.
You dont have to be a mind reader to guess why. Inflation is here and it can only continue.
The why of that is that stimulus and QE are here to stay because sovereign debt is out of control for at least a couple of more years, and to get back to a sustainable ratio between public sector debt and economic activity, the way ahead is inflation, not politically impossible austerity.
If you are a deflationist then you dont need three reasons for gold to be stuck, you will simply say, inflation is transitory, deflation means money will become more valuable and therefore commodities will fall. Looking at gold now you could say this argument has the whip-hand. So I take it seriously but the argument falls at the first hurdle of belief when I mouth, money will get more valuable at the same time as seeing the Fed print like crazy and watch asset prices fly to the moon, the direct opposite evidence of that argument even if gold alone seems to be stuck in a borderline bear market.
So here is the chart of gold:
The gold chart
For me that is a bullish chart, because this often happens next:
What could happen next to the gold price
That would fit with the inflation narrative.
A deflationist would argue:
What a deflationish would argue is next for gold
Here are three reasons.
Feds Blind Eye Toward Stable Market Signals Drives Uncertainty
The article concluded by highlighting the general uncertainty in the markets going into 2019:
All this macroeconomic uncertainty is clouding the 2019 earnings outlook, leading to increasingly violent equity swings as investors try to handicap what 2019 will look like, wrote Alec Young, managing director of global markets research at FTSE Russell.
The Feds recent blind eye to the yield curve seems like it wants to buffer what is really happening. But reality will prevail, even if the Fed is obscuring it.
Its difficult to trust Chairman Powells recent statements. As a precaution, hedge your bets while you still can, and dont let them hinder your ability to create a secure retirement.
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How Gold Stocks Perform Vs The Gold Price
In general, if you think gold has room to run, history would say you’re better off owning gold stocks than the yellow metal itself. However, if you think gold could be nearing a top, you’re probably better off holding gold than gold stocks, based on past performance.
Consider, from the gold price bottom in late 2015 through the August 2020 peak, GLD, the SPDR Gold Shares ETF tracking the commodity’s price rose 94%. Meanwhile, the VanEck Vectors Gold Miners ETF rose 244% over the same span. That reflects the dramatic corporate earnings improvement thanks to the higher price of gold. Improved earnings, in turn, allow mining companies to increase dividends as the price of gold rises.
Sometimes corporate dynamics and changing perceptions of them can take precedence. Even as the price of gold came down a bit, Franco-Nevada stock broke out to a record high in late December 2019. Newmont stock hit a multiyear high in that time frame.
Still, gold stock investors can never let down their guard. The descent for gold mining stocks from the 2011 price peak was much rougher than for the metal. To the trough in late 2015, GLD, which tracks the price of gold, tumbled 46%. Meanwhile, GDX, the ETF tracking gold miners, cratered close to 80%.
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Why Many Analysts See Gold Going As High As $10000
My first reaction when I read an article* on this site by Arnold Bock articulating why gold would go to $10,000 by 2012 no less was amazement. Who in their right mind would suggest that gold would eventually reach $2,500, let alone $5,000 or even $10,000? www.munKNEE.com
Well, I did some investigation and, believe it or not, Bock is in lofty company. Many respected individuals, such as David Rosenberg, Peter Schiff, Harry Schultz, Rob McEwen and many others, have come to the same conclusion. Below is a partial list of such individuals with sound reasons to substantiate their views.
1. Peter Schiff:As President & Chief Global Strategist of Euro Pacific Capital, Schiff correctly called the current bear market before it began. As a result of his accurate forecasts on the U.S. stock market, economy, real estate, the mortgage meltdown, credit crunch, subprime debacle, commodities, gold and the dollar, he is becoming increasingly more renowned.
He recently was reported in Business Week as saying that People are afraid of the debasement of all the currencies. Whats surprising is that gold is still as low as it is Gold could reach $5,000 to $10,000 per ounce in the next 5 to 10 years.
3. Alf Field:Alf Field has been called the worlds best gold analyst. He is well known for his many spot-on predictions in the precious metals market and these are some of his determinations regarding the future price of gold:
Swot Analysis: Where Will Gold Go From Here
- The worst performing precious metal for the week was silver with a loss of 4.47 percent. Bloomberg notes that holdings in all silver-backed ETFs they track fell 2.9 million ounces, set for the first monthly decline in 10 months.
- Total ETF gold fund holdings slid for a sixth straight day through Thursday, reports Bloomberg, making it the longest stretch in a year. The outlook for higher U.S. interest rates has dented the metals appeal as a store of value, even to billionaire investors George Soros and Stanley Druckenmiller. Naeem Aslam of Think Markets in London says investors are abandoning ship and jumping into risk trade. He believes now the clear trade is to go long the dollar index given that the odds of a rate hike are 91 percent in December. Its hard to say, however, what clear trades to follow, since many analysts also believed a Clinton win was just as clear.”
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Where Does This Leave The Price Of Gold & Gold Stocks
Its earnings season right now and a number of gold stocks have already reported a strong first quarter. Newmont Corp. announced first-quarter 2020 results on May 5. The company produced 1.5 million attributable ounces of gold. It also generated $939 million of cash from continuing operations and $611 million of Free Cash Flow.
Newmont refinanced $1.0 billion of outstanding debt at a historically low coupon of2.25% and executed $300 million of share repurchases at average price of $45. Now, 80% of its $1 billion buyback program is now complete. While this news triggered a run to new 52-week highs of NEM stock, it was fleeting.
Kirkland Lake Gold was another gold stock reporting earnings this week. While it didnt result in new 52-week highs, it may have softened the blow from a drop in the price of gold on Wednesday. Net earnings grew 84% in Q1 2020 compared ot 2019 and 20% compared to Q4 of 2019. Furthermore, Kirkland Lake revenue totaled $554.7 million. This was an 82% increase from $304.9 million in Q1 2019 and 35% higher than $412.4 million in Q4 2019. As far as gold sales, these totaled 344,586 ounces, a 48% increase from Q1 2019.
Where Do Gold And Silver Go From Here
We believe that something changed in March 2020. Several things. One, governments took power that they never before had . The power to lock down innocent, healthy people. The magnitude of the damage to the economy cannot be overstated.
Two, governments dramatically increased their deficit spending. They had already been spending a lot more than their tax revenue. They had already been borrowing without the means or intent to repay. But in the wake of Covid, they increased their spending .
Three, the interest rate plunged. It has been in free fall for four decades, but took a dramatic leg down after Covid. The 10-year Treasury yield had been 1.8% in January, but it fell to 0.5%.
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This Simple Chart Divulges Where The Gold Price Goes From Here
Gold has been in recovery mode since being knocked from seven-year highs. A key technical indicator could determine the next major trend. | Image: REUTERS / Vivek Prakash
- Gold extended its recovery on Friday, reaching an intraday high of $1,560.90 a troy ounce.
- The yellow metal is currently trading right around the 10-day moving average a settlement above this resistance line is needed to keep bullish momentum alive.
- 2020 is shaping up to be another strong year for gold as central banks and consumers load up on the precious commodity.
The price of gold was back on the offensive Friday, as mixed economic data counterbalanced keen risk appetite for stocks and other volatile assets.
Gold, which has been in recovery all week, is approaching a critical inflection point that could dictate the next major trend.
Real Interest Rates Are Key Factor
The gold price hit bottom at the end of 2015, just as the Fed hiked its benchmark interest rate for the first time since the financial crisis. But the gold price and gold stocks didn’t really begin to shine until the fall of 2018, when the Fed’s plan to keep hiking interest rates triggered a sharp stock market sell-off.
Gold’s persistent strength starting in late 2018 was driven by a fundamental change in the Fed’s thinking about inflation. Even as unemployment fell to a 50-year low, inflation pressures were a no-show. After slashing its benchmark overnight lending rate close to zero, the Fed has said it won’t hike interest rates until inflation is firmly above its symmetrical 2% target.
Based on the most recent Fed projections, the first hike isn’t expected before 2024. However, the Fed could alter that outlook based on incoming economic and inflation data.
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Special Report: 2021 Gold Price Outlook: Why Gold Will Keep Heading Higher
Gold has always served as a hedge against inflation.
The beginning of 2020 saw gold at $1,500 per ounce. By mid-2020, gold prices almost reached $2,100 per ounce almost a 40% increase.
At the end of January 2021, it was still up to $1,900 per ounce.
The second-largest spending bill in U.S. history, signed by President Biden, gave gold a more optimistic layout for the rest of 2021.
The question is can we expect gold prices to keep record highs and if so, how much further can we expect them to run?
We have already seen spikes from geopolitical dramas and standoffs, the lockdowns, and plenty of other events as well. Headlines will always drive short-term increases, which tend to quickly fade away, but fundamentals will carry the long-term trend.
Now, gold sits at roughly $1,700 per ounce.
Looking at the fundamentals, there is a strong case that gold is far from done with its record-breaking highs. Lets dive in and take a look..
When Will Silver Go Up: Silver In The Future
While the silver price outlook is impacted by supply and demand, it is also heavily influenced by investors who buy precious metals as safe haven assets during times of economic or political uncertainty. The World Silver Survey predicts the silver price will hit US$32 by the end of 2021.
CPM Group managing partner Jeffrey Christian says his firmwouldnt be surprised to see the price go back up and test US$30 or US$32 over the next several months.
But will silver surpass its record high of nearly US$50 per ounce? Christian thinks the market fundamentals are supportive for silver to climb back to that historical level. At some point, we think the price of silver will rise and rise sharp, he said. That increase we expect to coincide with the next financial and economic crisis.
Of course, theres also the question of manipulation experts such as Ed Steer of Gold and Silver Digest and GATA believe that the silver price is controlled by entities like JPMorgan and will not rise significantly until these players allow it to do so.
However, these factors dont mean that the silver price will never again reach its highest price of nearly US$50. In fact, Chris Marcus, founder of Arcadia Economics, who is the author of the book The Big Silver Short, has described the white metal as an amplified version of gold, and said hes surprised to see the white metal trading where it is.
Watch the full interview with Marcus and Brien Lundin above.
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Gold Digger: Where Do We Go From Here
Its been a frustrating few months for gold bulls.
As an investment hedge, gold shines during periods of poor or volatile market sentiment. It loves drama like pandemics, civil wars, or the unprecedented failure of the Lehman Brothers in 2008.
Now, the unwinding of economic support measures by central banks as global markets recover are dimming golds status as a safe haven.
After punching though that psychologically important $US1,800/oz mark recently, gold was down nearly 3% on Thursday as strong US retail sales data boosted the dollar.
Gold also often falls when the value of the USD goes up relative to other currencies worldwide.
Retail sales in the US unexpectedly rose 0.7% month-on-month in August handily beating market forecasts of a 0.8% drop giving ammo to those experts saying the Federal Reserve may hasten the unwinding of economic support and boost rates to help control inflationary pressures.
The strong retail sales figures show consumer sentiment is starting to come back, a good indicator for the Fed to bring in those expectations on the next rate hike, said Phillip Streible, chief market strategist at Blue Line Futures told Reuters.
An expected interest rates hike in the medium term could also translate to increased opportunity cost of holding non-yielding assets like bullion.
Opportunity cost would be the potential losses suffered by not investing in something more appetising, like uranium stocks.
Gold Demand Interest Rates And Treasurys
The dollar is a debt instrument. It is ultimately the liability of the Federal Reserve, backed by the debt of the US government. Which is backed by the capacity to tax everyone who produces within the US jurisdiction. And, in the wake of Covid, production dropped while the amount of debt rose. The US government therefor lurched closer to default.
At the same time, the interest it pays to holders of this debt went down. Higher risk, less reward. And the opportunity cost to own goldwhich pays no yield is less. One may be tempted by a Treasury paying 1.8%, but not so much at 0.5%.
The interest rate on this 10-year Treasury began to rise in August last year. It hit a peak in March of this year. Since then, it has been falling again.
Many firms were obliged to borrow to stay afloat during lockdown. The higher their debt, the more they need dollar liquidity. Which is harder to get, when rates are higher. So at the same time that the marginal investor is tempted to sell gold and buy bonds to get the yield that is available once again, the marginal debtor is forced to buy dollars at any price. The price of gold in dollars is really just the inverse of the price of the dollar .
Since March, the interest rate has been falling again .
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