Gold to $1500 By End of 2016- Money Morning

Release Date: 
Friday, August 12, 2016

Gold prices rose this week, fueled in part by a weaker than expected retail sales report released on Friday.

“Gold prices jumped into positive territory following weaker than expected retail sales data for July. Friday, Commerce Department said that advance retail sales were flat last month, compared to May’s rise of 0.6% in June. Consensus forecasts were calling for a 0.4% rise. At the same time core retail sales fell 0.3% following’s June’s revised rise of 0.8%. Economists were expecting to see a rose of 0.2%.” (“Gold Jumps Following Weaker Than Expected Retail Sales Data,” Kitco News, 8/12/16.)

Gold ended the week down $0.30, closing at $1,336.70. Silver prices closed at $19.74, down $0.02.

Gold to $1500 By End of 2016- Money Morning
The editors of Money Morning believe three factors will send gold to $1500 by the end of this year.

“With the metal up 27% this year, our new gold price prediction shows another double-digit return by the end of 2016. In fact, our Money Morning experts think gold will continue to be one of the best-performing assets of the year…

“But one of the biggest reasons for the gold price rally has been negative bond yields. Despite growing concerns about another rate hike in the United States, global yields keep falling into negative territory. According to TD Bank, negative yields will continue to make precious metals attractive.

“The fallout from the Brexit vote has also fueled the gold price. The UK's decision to leave the EU will hit global trade and financial sectors the hardest. As these repercussions unfold, investors will keep flocking to gold as a hedge against market volatility.

“But there are three more factors that will keep pushing gold prices higher in 2016. According to Money Morning Resource Specialist Peter Krauth, these factors are why he revised his 2016 gold price prediction. Here's why prices will see a double-digit return by the end of the year…

“While near-term prices are tough to predict, Krauth sees gold prices hitting $1,500 by the end of the year. That's up 11.4% from today's price of $1,346.40. The first reason why the gold price will hit that mark is rising coin sales… The second reason is inflows of cash into gold exchange-traded funds (ETFs)… The third bullish factor for our gold price prediction is the Fed's hesitance to raise interest rates...

“Krauth says the price of gold may see some short-term drawbacks… Still, Krauth notes these contrary indicators lessen gradually over time. In other words, gold prices are poised for long-term gains in 2016 and beyond.” (“This New Gold Price Prediction Shows Double-Digit Gains by December,” Money Morning, 8/8/16.)

Record Gold Investment for First Half of 2016 – WGC
The World Gold Council reported that demand for investment gold reached a new record for the first half of 2016 (also known as “H1”), surpassing the prior record during the Great Recession. Gold also saw its greatest H1 price gain since 1980.

“Record H1 for gold investment - Investment demand of 1,063.9t (tons) accounted for almost half of overall gold demand during the first six months of 2016. Western investors generated the bulk of this investment.

“Investment has witnessed exceptional growth this year: record H1 demand of 1,063.9t is 16% higher than the previous H1 high from 2009, when the market was in the midst of the global financial crisis. Consequently, for the first time on record, investment has been the largest component of gold demand for two consecutive quarters… The speed of the upswing in investment was in no small part due to the scale of pent-up demand that had built in Western markets…

“2016 has unleashed a variety of events creating economic and political uncertainty, compounded by NIRP and further highlighting gold’s role as a high-quality, liquid asset.
The US election, the UK referendum on EU membership and possible implications of the ‘Brexit’ outcome, the increasingly parlous state of Italy’s banking sector; these have proved a potent combination as far as gold investors are concerned. Add to that continued geopolitical unrest in the Middle East and the investment case for gold was cemented…

“Gold up 25%: strongest H1price gain since 1980 - Thanks to unbridled investment inflows, the gold price has surged since the end of 2015. But so has volatility, which has had mixed results for consumer demand.  After starting the year with a stellar 17% Q1 gain, the gold price climbed further in the second quarter to set the seal on the strongest H1 performance for more than 35 years. In US$ terms, gold was one of the best performing investments in a basket of commodities that we monitor, behind only Brent crude (which burst higher on improving prospects for its supply dynamics) and silver.
And given that the US dollar has strengthened against a number of currencies this year, gold’s H1 performance when denominated in other currencies has been better still….” (“Gold Demand Trends 2d Quarter 2016,” WGC, 8/11/16.)

Time To Hedge Portfolios with Gold – Motley Fool
A Motley Fool contributor offered three reasons why investors should be hedging their portfolios with gold.

“In recent months, precious metals including gold have surged ahead as growing global economic and geopolitical uncertainty trigger a flight to safety among investors. The lustrous yellow metal is up by 23% over the last year, trading at its highest point since mid-March 2014. Despite claims among some analysts that gold is poised to pull back, there are signs that indicate it has further to run…

“Firstly, the growing consensus among analysts is that gold has entered a new bull market after being trapped in a bear market over the last years. In mid-May of this year JP Morgan was advising its clients to position themselves for a new and very long bull market in gold. The reasoning behind this was that in an economic environment where negative interest rates dominate and bond yields are at historical lows, gold is an attractive hedge and risk-off investment. This sentiment appears to stretch across the major banks; Bank of America subsidiary Merril Lynch expressed a similar view…

“Secondly, growing economic and geopolitical insecurity makes gold an invaluable hedge against uncertainty and market volatility. Gold is perceived to be a store of value and a safe-haven asset in times of turmoil. With the global economy filled with fissures and entering an era of uncertainty both economically and politically, investors are growing increasingly wary and are hedging their bets against another financial crisis…

“Each of these factors indicate that the world is just one step away from another economic crisis that could send stocks tumbling. As gold is a safe-haven asset that is negatively correlated to stocks, it is the perfect hedge against the next economic crisis.

“Finally, gold is an important backstop for the value of fiat currencies, meaning that central bank buying will continue. You see, a large number of central banks across the globe have implemented quantitative easing (QE), which is essentially a form of money printing, the value of their fiat currencies is being eroded. As a result, many, such as the European Central Bank, or ECB, have been buying gold in order to backstop the value of their currency…

“Despite being critical of gold as an investment, it is increasingly clear that now is the time for investors to hedge against growing economic uncertainty by adding gold to their portfolios….” (“3 Reasons to Invest in Gold,” Motley Fool, 8/10/16.)

Dangerous Central Bank Policies Make Case for Gold – Grant
Jim Grant, founder of Grant's Interest Rate Observer, gave the closing keynote address at a conference on risk management for investment portfolios, warning that reckless central bank policies will lead to a banking crisis. 

“Negative interest rates are unsustainable and once investors decide to stop paying for the privilege of holding government debt, a banking crisis could result, says James Grant… Central banks are treading in uncharted waters. Sidney Homer and Richard Sylla, the authors of A History of Interest Rates, found no instance of negative rates in 5,000 years. Now there are $11.7 trillion invested in negative-yield sovereign debt, including $7.9 trillion in Japanese government bonds and over $1 trillion in both French and German sovereign debt. Grant posed a tongue-in-cheek question: ‘If these are the first sub-zero interest rates in 5,000 years, is this not the worst economy since 3,000 BC?’ …

“To maintain increasingly lower interest rates would require a ‘war on cash,’ Grant said. He envisions a means by which the Fed would discourage and stigmatize using cash, and ultimately implement an unfavorable exchange rate on physical currency…

“Grant acknowledged that gold is ‘the asset class of choice for calamity hounds,’ but suggested that investors consider it. The case for gold, he says, has more to do with the state of money and credit than with Brexit. Grant characterizes the value of gold as the reciprocal of the world’s trust in central banks. ‘Radical monetary policy begets more radical policy,’ he said. ‘It seems to me, at some point, markets or voters will put a stop to this.’

“If and when that time comes, investors will be looking for physical stores of wealth. ‘The case for gold is not as a hedge against monetary disorder, because we have monetary disorder, but rather an investment in monetary disorder,’ Grant said….” (“JIM GRANT: 'Central bank acrobatics' could result in a banking crisis,” Business Insider, 8/8/16.)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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