Gold Positioned For $1300 By Year End; $2000 By 2025 - ANZ

Release Date: 
Friday, June 16, 2017

Gold prices were pressured by a Federal Reserve interest rate hike and hawkish statements from its Chair which sent the dollar higher and gold prices lower.

"Gold prices edged higher on Friday, but were still hovering near a three-week trough as the greenback remained broadly supported after recent upbeat U.S. data and the Federal Reserve's decision to raise interest rates… The greenback gained ground after the release on Thursday of encouraging data on U.S. initial jobless claims, as well as on manufacturing activity in the Philadelphia and New York areas. The data came a day after the Fed raised interest rates from 1.00% to 1.25%, in a widely expected move…

"Gold is sensitive to moves higher in both U.S. rates and the dollar. A stronger dollar makes gold more expensive for holders of foreign currency while a rise in U.S. rates, lift the opportunity cost of holding non-yielding assets such as bullion…." ("Gold prices edge higher but hover near 3-week trough," Investing.com, 6/16/17.)

Gold ended the week down $13.00, closing at $1,254.40. Silver prices closed at $16.79, down $0.48.

Gold Positioned For $1300 By Year End; $2000 By 2025 - ANZ
The senior analyst for one of Australia's largest banks, ANZ, sees higher gold prices this year and a new long term record high.

"Gold may have been frustrated in its most recent run at $1,300 an ounce but geopolitical risks could catapult it above that level over the next 12 months. That's the view of ANZ's senior commodity strategist Daniel Hynes…

"We see gold holding above USD1,250/oz in the short term. Safe-haven buying has supported gold prices over the past six months, and rising geopolitical risks - particularly in the US - are likely to propel prices even higher. If the US political situation worsens this year, there is an increasing possibility of prices breaking through USD1,300/oz… We think the environment is conducive to higher gold prices, despite the spectre of a US rate hikes in June and September… We are also observing signs of an improving physical market. Demand in India and China have in recent months rebounded sharply from a low base…

"'The gold price is likely to rise above USD2,000/oz by 2025. This is our central case for the gold price. While prices may trade only marginally higher over the next few years, we believe the combined effect of greater demand from investors and central banks will see gold prices rise over the long term…." ("Gold Can Break Above $1,300 Over Next 12 Months; When Will It Hit $2,000? Barron's, 6/14/17.)

Credit Suisse Forecasts $1400 Gold By 4th Quarter
Swiss bank Credit Suisse believes the U.S. dollar will soften by the fourth quarter helping to send gold prices to $1400 per ounce.

"Credit Suisse still looks for $1,400-an-ounce gold by the fourth quarter… Analysts said their bullish gold view for $1,400 gold by the fourth quarter is based on expectations that U.S. real rates will surprise to the downside, U.S. dollar strength will wane, a dovish central-bank approach to future monetary policy, continued robust Chinese investment demand, and an elevated probability of a disruptive geopolitical event…." ("Credit Suisse still looks $1,400 Gold by Q4 2017," Scrapregister, 6/14/17.)

Public Sector Investors Hoard Gold On Safe Haven Buying - Financial Times
The Financial Times reported that public sector investors have increased their gold holdings to an 18-year high.

"The gold reserves of the world's biggest public sector investors reached an 18-year high as they hoarded the precious metal after Donald Trump's election and the Brexit vote added to geopolitical uncertainty… Danae Kyriakopoulou, chief economist at the Official Monetary and Financial Forum (Omfif), the central bankers' forum that compiled the research, said state investors had flocked to the precious metal because of its status as a "haven asset" and to take advantage of rising prices. 'There was a lot of political uncertainty in the past year. There were big political shocks with Brexit and Trump, which have driven investors back to gold,' she said…

"Alistair Hewitt, head of market intelligence at the World Gold Council, said state-backed investors had also increased their gold stores as a hedge against a potential weaker dollar. The dollar is up 15 per cent against the pound over the past year. 'Central banks and public institutions have been adding to their strategic gold holdings for a number of years,' Mr Hewitt said. 'A lot of emerging market central banks hold significant amounts of US dollars, and they have bought gold as a hedge against this concentrated currency exposure…'

"Although the outlook for global growth has stabilised in 2017, public investors remained concerned about the fraught political environment globally, the Omfif study found … According to Omfif's study, geopolitical risk was the biggest concern for pension plans, sovereign wealth funds and central banks over the next 12 months…." ("State investors stock up on record gold reserves amid uncertainty," Financial Times, 6/11/17.)

2017 Looking Like 1999 "Dot.Com" Bubble - McMillan
Brad McMillan, chief investment officer at Commonwealth Financial, authored a concerning report demonstrating the parallels between today's economy and the 1999 "dot.com" bubble which ultimately crashed.

"This year is resembling 1999, the thick of the 'dot-com bubble' in which hot technology stocks soared before tumbling in the early 2000s, according to Brad McMillan, chief investment officer at Commonwealth Financial. McMillan wrote in a new report that the two years, both within periods of economic growth, have blatant parallels by five different measures and indexes - consumer confidence, business confidence, the 10-year-to-3-month Treasury yield spread, private sector job growth and the S&P 500.

"All of these economic areas 'look very much like they did in 1999. It's remarkable,' McMillan said Thursday on CNBC's 'Trading Nation.' 'We're at the end of a long boom. People don't see it that way, but it really has been.'

"[McMillan] thinks investors should prepare for an adverse market event. 'When you live in Florida and you know hurricane season is coming, that doesn't mean you move back to Massachusetts. But it does mean you're aware of it, you plan for it, and you're prepared if something happens to it,' McMillan said. 'I'm not saying we have to panic, I'm just saying it's time to think about stormy weather.'

"He does see the potential for a recession in about a year, brought on by an environment in which the Federal Reserve is in a tightening cycle, consumer confidence is high and valuations are quite high…." ("The glaring resemblance between 2017 and 1999, in five charts," CNBC, 6/16/17.)

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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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