RBC Increases Gold Forecast by $200

Release Date: 
Friday, August 19, 2016

Gold prices were largely range bound this week, retracing some earlier gains on Friday on Federal Reserve comments suggesting a possible interest rate hike.

“The split among Federal Reserve officials on whether to boost U.S. borrowing costs is whipsawing gold again. Futures gained Thursday, a day after the July Fed minutes were released showing policy makers are divided on rates, only to swing to a loss Friday. Comments from Fed Bank of San Francisco President John Williams after gold futures closed on Thursday revived the bearish sentiment on the precious metal, paring this week’s gains…

“The market remains very twitchy around anything that relates to the Fed,’ said Neil Meader, an analyst at Metals Focus Ltd. in London. ‘This period of consolidation we’ve seen in prices is a reflection of the lack of clarity on when the next increase will occur….’” (“Gold Whipsawed as Fed’s Williams Flags Support for Rate Increase,” Bloomberg, 8/19/16.)

Gold ended the week up $5.40, closing at $1,342.10. Silver prices closed at $19.36, down $0.38.

RBC Increases Gold Forecast by $200
Mining.com reports the investment arm of the Royal Bank of Canada (RBC) has joined other international banks in forecasting higher gold prices, increasing its target to $1500.

“Gold has been treading water above the $1,340 an ounce level recently, coming off two-year highs hit earlier in August. Year to date the metal has gained almost 26% or more than $280 an ounce.

“It's been gold best first half run since 1980 when the price hit an all-time high on an inflation adjust basis… Many gold bears have now changed course and some of the big bullion banks including UBS now sees $1,400 before the end of the year, as does French bank Natixis (which predicted last year's gold price down to the dollar)…

“Credit Suisse and BofA Merrill Lynch have it even higher at $1,500 going into 2017. Dutch bank ABN Amro, another erstwhile ultra-bearish house, revised its forecast to $1,425, adding that a Trump presidency could really see things explode.

“Kitco reports Canadian investment bank RBC Capital Markets has now joined the gold bull chorus sharply revising their earlier forecasts upwards. The bank now sees gold rising to $1,500 in 2017 and 2018 compared to its previous forecast of $1,300. RBC references the usual suspects for its more bullish outlook: "Elevated geopolitical risk in the U.K./euro zone, increasing systemic risk with increasing negative yields for government bonds and the Fed likely to pursue a more dovish monetary policy”….” (RBC adds $200 to its gold price forecast,” Mining.com, 8/14/16.)

Gold Rally to Continue – Business Standard
The financial business daily, Business Standard, reported that a number of experts see higher gold prices as the bull market continues.

“Gold has risen about 26.1 [percent] year-to-date in 2016. The strong rally in yellow metal has raised three questions for investors: Will the rally continue? Will it be prudent to make fresh investments at current levels?...

“According to experts, the experimental policies being pursued by central banks in the developed world are causing investors to flee to gold. The normalisation of interest rates by the US Fed has been slower than the Fed had communicated. “Investors have come to believe that real interest rates in the developed world will stay negative for a prolonged period. This is the primary factor driving demand for gold,” says Chirag Mehta, senior fund manager - alternative investments, Quantum Mutual Fund…’Gold is one asset that can’t be printed and released into the system,’ says Lakshmi Iyer, chief investment officer (debt) and head-products, Kotak Mutual Fund.

“Experts believe that the rally in gold is likely to continue. Prateek Pant, co-founder and head of products and solutions, Sanctum Wealth Management, says “Negative interest rates and surplus liquidity conditions will continue to prevail in developed world for some time. Given these conditions, gold is a good asset class to stay invested in…”

“Despite the run-up, gold may not have peaked yet. ‘During the last rally, gold’s price in the international market had gone past $1,900 per ounce. If investment demand remains strong, there could be more upside to the present prices,’ says Pant. At $1,351.50 per ounce currently, gold is way below its previous peak. Investors who don’t have an exposure to gold may invest even at current levels. Says Mehta: ‘We have run numbers which suggest that investors should have a 10-15 [percent] allocation to gold at all times. This level of allocation has the potential to reduce portfolio risk considerably without affecting returns.’ In his opinion, investors who don’t have this level of allocation may invest even after the run-up of the past year….” (“Rally in gold may continue,” Business Standard, 8/18/16.)

Gold At Beginning of Greatest Bull Market Ever – Grandich
Peter Grandich, the former editor of The Grandich Letter, came out of retirement to discuss why he believes gold is entering the greatest bull market ever.

“I’m not going to write some long dissertation but rather just highlight some of the reasons I personally believe gold is in the earliest stages of what can turn out to be its biggest bull market ever…

“[H]ere are just a few on the many reasons why I’m so personally optimistic that the gold price (which already has performed handsomely this year) has so much further to go on the upside in the coming years… When [gold] finally broke above $1,000 for good, it ran to the $1,900 area by 2011. Like most investments, prices tend to come back towards the previous major top area (in this case, the $1,000 area) and then head up again, confirming the break above key resistance is now key support. This is pretty much what gold has done up until now…

“A major geographical shift has been underway of key ownership of physical gold from the West to the East… The bullish fundamentals for gold ownership grow almost daily. Again, I could write pages of why, but I will just point out a few key ones:

“Whether its debt bombs all around the world, paper currencies being debased faster than ‘Grant took Richmond’, or Central Banks getting ready to launch funny money from helicopters in a last futile attempt to correct their quantitative easing failures, take your pick on the inevitable ignitor that will lead to a  blow up of financial systems. It’s not if, but when!

“I can go on and on why this former ‘soothsayer’ believes gold is going much, much higher. I would suggest if you’re serious and want to consider it as part of your portfolio, we’re coming close to a break out point where if and when it occurs, I suspect an acceleration to the upside will take place… Buckle up. It won’t be a straight ride up and forces still remain who don’t want to see gold rise. However, I never been more convinced on any path of any investment I followed for over 30 years....” (“Gold – The Mother of All Bull Markets Has Only Just Begun,” Peter Grandich and Co., 8/16/16.)

Gold is a Core Investment Portfolio Diversifier – Nasdaq
The equities exchange Nasdaq reported that investors should include gold in their portfolio as a core diversifier.

“Precious metals have been among best performers this year, but investors shouldn't wait for conditions to be just right before looking into gold allocations. Gold should not be used as part of a market-timing trade, but rather as a core investment portfolio diversifier, Jerry C. Wagner, President and Founder of Flexible Plan Investments, said on the recent webcast, What's the Optimal Percent Allocation to Gold?

“In a 43-year study of gold measured against all asset classes, titled The role of gold in investment portfolios, he found that the precious metal showed an average correlation of 0.06, which suggests that there is almost no relationship or dependency with other basic asset classes, making bullion a great portfolio diversifier.

“’Financial advisors have long valued gold as a diversifier because it doesn't always move the same way stocks or bonds do. Studies show that gold is superior to general commodity exposure in portfolio construction in several market scenarios,’ Wagner said. Financial advisors on the webcast also seem to agree with this sentiment. In a survey of advisors attending the webcast, 86% of respondents pointed to portfolio diversification as the main draw for gold investments, compared to 3% looking for the best tax treatment and 11% shooting for short-term performance…

Gold can ‘act as an important counterbalancing portfolio component under a variety of very specific market and economic conditions,’ Wagner said. However, Wagner warned that gold may underperform when the economy is suffering through deflation. Looking ahead, 60% of advisors surveyed on the webcast are looking to increase gold allocations ahead, with 39% saying they will stand pat….” (“Why Investors Should Consider a Gold Position,” Nasdaq, 8/18/16.)

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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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