Gold price is gearing up: Here's the direction analysts are looking at
After shedding nearly $200 this week and consolidating around $1,950 an ounce, gold is looking to resume its rally, but how far can prices really go?
Gold's steepest daily correction in seven years was healthy for the market, according to analysts, who were highly anticipating it to happen.
“To lose $120 in a single session is some dramatic price action. But it was very healthy for gold to pull back down closer to $1,900. There is good support on the low end, which sets us up for more steady gains going forward into September and the fourth quarter,” Gainesville Coins precious metals expert Everett Millman told Kitco News on Friday.
An important sign from this week’s pullback was strong buying interest on dips, said RJO Futures senior commodities broker Daniel Pavilonis.
“We’ve already seen decent-sized bounce. Next week, we’ll begin to see some volatility and ultimately move higher. Don’t think the rally is done,” Pavilonis noted. “If you are on a big bullish momentum move, you will see pretty big selloffs followed by bounces up. It is good that we sold off quickly and support held — it is a test to how strong the trend really is. We can go higher now.”
On the radar: U.S. fiscal talks, U.S.-China tensions
The two biggest unknowns for next week is the U.S. fiscal package, which is still nowhere close to being passed, and the U.S.-China trade talks, which are restarting and could trigger some major volatility.
The U.S. President Donald Trump continued to blame the Democrats for holding up the coronavirus fiscal stimulus package. This comes a week after talks failed with congressional Democrats. The Republican-controlled Senate and Democratic-controlled House of Representatives are now back in an informal recess but party members can be recalled if a deal emerges.
“Stimulus package is a concerning item. Reality is that the Senate won’t convene for some time and it might be awhile before it gets through. For the moment that is a negative factor for market sentiment and negative for gold,” said TD Securities commodity strategists Daniel Ghali.
Once the deal is reached, it will end up being negative for the U.S. dollar and positive for gold, Blue Line Futures chief market strategist Phillip Streible stated.
“The U.S. dollar would take a whole leg lower if they approved the Democratic versions of the aid package. Meanwhile, the Republican version would see the U.S. dollar grind slowly lower,” Streible said. “If we can get some kind of deal, we should see inflation expectations rise.”
The U.S.-China trade talks are key for next week as traders are waiting to see some headlines before making a move, said RBC Wealth Management managing director George Gero.
However, on Friday Reuters reported that the U.S.-China trade deal review meeting has been delayed due to scheduling issues. The meeting was originally set for Saturday.
So far, China is really behind on its commitments in terms of buying U.S. exports to meet first-year targets.
“Should either [the U.S. fiscal talks or the U.S.-China trade talks] take a negative turn, traders may upend attempts to register new record equity highs, while paving the way for gold to rebound back above the $2000 mark,” said FXTM market analyst Han Tan.
Treasury yields and the U.S. dollar
Two major triggers for gold will continue to be the U.S. Treasury yields and the U.S. dollar. This week, the strength of both contributed to gold’s move down.
The biggest change this week has been nominal and real rates starting to rise, said Ghali.
“The environment that previously drove gold higher is now subsiding, but the buyers keep on buying the dips,” stated Ghali, cautioning that the price pullback might not be over. “The $1,850 level is where gold starts to get attractive again.”
As bond yields rise, gold’s appeal diminishes, said Millman. “I’m closely watching recovery in yields in the Treasury market,” he said.
FOMC meeting minutes
Another big item on the agenda next week is the Federal Reserve’s meeting minutes from July, which will be published on Wednesday. Investors will be paying close attention to any comments on yield curve control (YCC).
“Any hint at inflation targeting and YCC in the FOMC minutes next week should be USD negative,” ING strategists said. “Minutes of the July FOMC meeting are released on Wednesday and any suggestion of impending Average Inflation Targeting (AIT) or Yield Curve Control (YCC) would be a dollar negative. On balance we would prefer to back the latter story next week, meaning that the DXY could make a new low.”
Also, the meeting notes might reveal some discussion around the central bank’s review of monetary policy strategy.
Price levels
The price levels that analysts are watching vary from the high $1,800s to the low $2,000s.
Another major price pullback is unlikely next week, said Afshin Nabavi, vice president at precious metals trader MKS SA. “Psychologically, $1,900 and $1,925 is good support. On the upside, $2,000 is resistance.”
The risks on the downside and upside are both symmetrical, said Millman. “I wouldn’t be shocked if we fell below $1,900 next week. Also, it wouldn’t take much to get to $2,000.”
Streible said he is looking at $1,900 and $1,874 for support with lots of potential new buyers coming in once gold climbs back up above $2,000 an ounce. “People would be much more conformable at re-entering the market north of $2,000 on the fear of missing out,” he noted.
First resistance for Gero is at $2,000 with $1,900 as major support, followed by $1,950. The fact that the U.S. elections are coming up will add more volatility and push gold towards $2,100 an ounce by year-end, Gero added.
Data to watch
Aside from the FOMC meeting minutes on Wednesday, lots of U.S. housing data will be on the radar.
On Tuesday, markets will be watching building permits and housing starts numbers. Thursday will see jobless claims and Philly Fed manufacturing data published. And on Friday, existing home sales and manufacturing PMI will be released.
“For the upcoming week, it is all about housing data, which should look good. We know mortgage applications are strong thanks to low mortgage rates with anecdotal evidence suggesting demand is led by older buyers looking for a second or vacation home. This story has been in play for around four months now and should help fuel transactions, which in turn has historically been well correlated with consumer spending on related sectors such as furniture, home furnishings, garden equipment and building supplies,” said ING chief international economist James Knightley.
Gold price and stocks both have upside; the biggest risks and opportunities to watch
While macroeconomic risks linger, the environment is constructive for both gold and risk assets, said Rob Haworth, senior investment strategist, U.S. Bank Wealth Management.
“What we’re seeing in recent times is real yields are finally starting to rise…which is pressuring gold as well, so it’s been time for a correction and we’re getting that now,” Haworth told Kitco News. “I do think that gold prices in particular would be further supported by continued growth in the Fed balance sheet.”
An economic recovery is taking place, but downside risks remain, Haworth noted.
“The challenge for us is the high frequency data has flattened out a bit, so if we look at travelling, whether it’s the TSA data, we look at open tables, who’s dining in restaurants, the improvements are starting to flatten out. So we’re not, in my opinion, back to pre-COVID levels of activity overall,” he said.
Haworth maintains a bullish stance on equities. His portfolio is balanced between stocks and bonds, and this balanced approach is attributed to several lingering unknowns in the market that are being tracked.
“I think the challenge for us is really that there’s a two-sided scenario as we look forward, and there’s an awful lot of risks to get through. One, we don’t yet have fiscal stimulus this side of the pond. Two, we need to get through the back to school season,” he said.
Haworth added that the elections present a major uncertainty to the markets.
U.S. Bank Wealth Management has been paying more attention to gold in recent times, and hold the yellow metal as a hedge against their equities positions.
“Gold’s getting attractive at this point, especially with the equities decline. The primary purpose of it is to provide some downside protection relative to our equities positions,” he said.
Why did the gold price crash, and will it happen again?
Gold prices saw their worst daily drop since 2013 on Tuesday. This sharp pullback was due to profit taking and did not detract from the long-term bullish picture, said Gary Wagner, editor of TheGoldForecast.com.
“Personally, I do not believe it’s the end of a bull rally. We have entered some sort of a correction. The question I’m asking myself and the technical studies I’m looking at for the answers is whether or not this will be a shallow or short correction, or an extended correction,” Wagner told Kitco News Wednesday.
Gold fell nearly 6% on Tuesday; a single-day move of this magnitude has not always been possible, Wagner noted.
“Back in the early 1980’s when I began as a commodity broker, they had limit moves on gold, platinum, and palladium. They could only move so much, kind of like the S&P now with the circuit breakers, and they would stop trading for the day,” he said.
While the rally we saw in gold had macroeconomic undertones, like a weakening U.S. dollar and an accommodative Federal Reserve, but the correction this week was due mainly to profit taking and not to any fundamental shifts in the economy, Wagner noted.
“My sentiment is that it wasn’t a macro event, but rather the market getting too crowded,” he said. “I think the reason for the selloff yesterday was pure and simple market taking.”
Wagner added that many of his personal friends who are generalist investors have been inquiring about gold, signaling to him that we may have already seen a herd mentality in the space.
The charts, however, still tell a long-term bullish story.
“On a technical basis, even yesterday’s exaggerated move did not cause any extended chart damage,” he said.
Trading activity has indicated to Wagner that this correction is likely going to be short-lived.
“What I’m seeing is even with a strong correction, and a really, really massive price decline, there were buyers willing to buy the dip, and that is what will make this correction short-lived,” he said.
The overdue correction begins – How much can gold price, silver price fall?
The highly anticipated correction in gold and silver prices has begun. But don’t despair, says Commerzbank, projecting for the precious metals’ rally to resume after some profit-taking has taken place.
Gold has kicked off its downward trajectory after a failed attempt at a new record high on Monday.
“[The precious metal] made another attempt yesterday afternoon to reach the record high it posted at the end of last week, though it failed and only made it to $2,050. The price has been on a downward trajectory ever since,” wrote Commerzbank analyst Carsten Fritsch.
At the time of writing, December Comex gold futures were trading at $1,956.70, down 4.07% on the day.
It would not be surprising to see some significant profit-taking this week as prices saw extensive gains in the last few weeks — first breaching $1,920 an ounce, then rising above $2,000 an ounce, and even starting to eye $2,100 an ounce last week.
“The scale of the upswing over the past four weeks has been excessive. This was made clear by the extremely high RSI and the pronounced deviation from the 100-day moving average. Sentiment towards gold became positive in the extreme, with only a minority of participants sounding a note of caution,” said Fritsch.
Commerzbank is not ruling out seeing gold retreat to as low as $1,924 an ounce.
On top of everything else, the rally has been largely driven by investor interest, which might be enough to drive prices higher but not enough to sustain the uptrend.
“The price rise was almost solely attributable to robust investor demand, with all other demand components playing hardly any role. It is understandable that investors now appear to be taking profits,” Fritsch added. “This is also evident from the gold ETFs: they registered outflows on two consecutive days, which last happened in early June.”
However, a very significant correction like in mid-March is very unlikely, the analyst said.
Most importantly, this is not the end of the road for gold and silver prices, Fritsch noted, adding that the rally will resume after prices consolidate lower.
“The long-term outlook for gold and silver remains positive, however. Prices are likely to begin rising again as soon as the current correction has finished,” Fritsch wrote.
Gold rate today – Yellow metal falls as dollar rebounds; Support placed at Rs 53,700 per 10 grams level
Analysts suggest selling gold on the rise as they expect further profit booking.
US gold futures fell 0.6 percent to $2,028.10.
Gold rate today: Yellow metal falls as dollar rebounds; Support placed at Rs 53,700 per 10 grams level
Gold prices in India fell on the Multi Commodity Exchange (MCX) Tuesday tracking weakness in international spot prices on a strong dollar amid rising tensions between the United States and China, analysts said.
At 11:10 am, gold futures for October delivery fell 1.26 percent to Rs 54,255 per 10 grams as against the previous close of Rs 54,946 and opening price of Rs 54,750 on the MCX. Silver futures traded 1.64 percent lower at Rs 74,160 per kg. The prices opened at Rs 75,000 as compared to the previous close of Rs 75,394 per kg.
“Gold and Silver prices fell on profit booking as the dollar rebounded. We are witnessing a technical correction, however, undertone remains positive,” said Jigar Trivedi, Fundamental Research Analyst at Anand Rathi.
International gold fell on Tuesday as the dollar firmed after Beijing slapped sanctions on US officials in the latest flare-up in tensions between Washington and Beijing, with investors also keeping a close watch on negotiations over a US stimulus plan.
Spot gold was down 0.5 percent to $2,017.98 per ounce, moving further away from a record high of $2,072.50 hit last week. US gold futures fell 0.6 percent to $2,028.10.
According to Ajay Kedia, Director, Kedia Commodities, COMEX gold prices may fall near 1,980 levels going ahead. On MCX, if prices remain below Rs 55,000, then gold may test Rs 53,500 level, he said.
Analysts suggest selling gold on the rise as they expect further profit booking.
“Support for gold is placed at Rs 53,700 while resistance is seen at Rs 54,700-54,900 levels. For silver, support is seen at Rs 73,600-74,000 levels while resistance is placed at Rs 74,600-74,900 levels,” Trivedi added.
Gold is starting to take the place of big tech – Mohamed A. El-Erian
With U.S. treasury yields set to fall, investors are starting to cycle into solid, real assets like gold, said Mohamed A. El-Erian in an interview with Bloomberg.
During an interview posted on Friday, the former Chief Economic Advisor at PIMCO said that the narrative that has been driving big tech is now true of gold.
"What's interesting about gold is that it's starting to become everything to everybody. People like it because it's defensive. People like it because it's a reflationary trade. People like it because its inflation protection," said El-Erian.
"So the narrative of gold is similar to the narrative with big tech: it gives you everything."
Treasuries are holding less appeal. Scott Minerd of Guggenheim Investments told Reuters that he expects U.S. treasuries to dip into negative territories with Federal Reserve Chairman Jerome Powell keeping interest rates near zero indefinitely while Powell waits for the economy to regain its footing.
Tech stocks have out-performed other sectors by significant margins this year.
El-Erian said people are moving partially out of treasuries and looking at a basket of assets that will act as a risk mitigator.
"What I've seen smart people do is combine treasuries, high-quality investment grade and solid real assets," said El-Erian.
"It's that allocation that is replacing just an allocation to treasuries.
Be careful what you wish for – Would a gold standard trigger gold confiscation?
Massive money printing, weaker U.S. dollar, currency debasement fears, and major inflationary concerns are all flashing warning signs for many precious metals investors, elevating the voices in support of the gold standard. But would a hypothetical adoption trigger gold confiscation? Remember the 1930s?
The U.S. dollar has been on a downward trend recently and many analysts, including those from Goldman Sachs, are warning that the U.S. dollar is at risk of losing its global currency reserve status. There are “real concerns around the longevity of the U.S. dollar as a reserve currency,” Goldman said in a report last week.
Gold, on the other hand, has been on a very bullish uptrend, continuing to hit new all-time highs above $2,000 an ounce almost on a daily basis this week
As the great American money printing machine churns out more and more dollars, would a gold standard help the situation?
Analysts and commodity experts are in a heated debate over the topic. But there is a major unknown in the equation — would gold confiscation be a part of the deal?
Confiscation fears
Let’s start from the beginning. The gold standard was adopted by the U.S. in 1879. The period between 1879 and 1914 is known as the so-called classical gold standard era, during which one ounce of gold would represent $21.
Things got a little more complicated from there. In 1933, Franklin D. Roosevelt used the authority granted to the president by the Trading with the Enemy Act to ban gold ownership in the U.S. More specifically, all U.S. citizens were required to sell their gold coins, gold bullion, and gold certificates to the Federal Reserve in exchange for $20.67 per ounce, which was below market value. This is known a Roosevelt's Executive Order 6102. Important exception was made for rare coins: “Gold coin and gold certificates in an amount not exceeding in the aggregate $100 belonging to any one person; and gold coins having a recognized special value to collectors of rare and unusual coins,” the order stated.
After this, the price of gold was raised to $35 an ounce and remained fixed until 1971, when Richard Nixon put a halt on the U.S. dollar’s convertibility into gold, which meant that other countries could no longer redeem dollars for gold. Finally, in 1973 Nixon scrapped the gold standard.
Pro-gold actions followed, including the 1974’s decision to repeal Roosevelt’s Executive Order to nationalize all privately-owned gold, which restored the U.S. citizens’ right to own gold. Then in 1977, the president’s authority to control gold transactions during a period of national emergency was removed, aside from during a time of war.
However, the Trading with the Enemy Act is still in force, which is where most of the confusion and fear that gold confiscation could be back comes from.
The experience with gold confiscation is not unique to the U.S. either. Some other famous cases included Australia’s 1959 law that allowed gold seizures from private citizens and the U.K. private gold ban of 1966, which was lifted only in 1979.
So, this leads us into our hypothetical scenario — if the U.S. were to go back to the gold standard in some shape or form, would there be a confiscation of privately-owned gold?
Analysts were divided on the subject, but the majority did not seem to rule it out.
“There would have to be some type of gold confiscation. If you back the money with gold, you really can't allow people to openly trade that monetary asset. Jewelry would be fine and I'm sure you would see lots of people trying to melt down their gold and turn it into jewelry if there was another gold confiscation,” Gainesville Coins precious metals expert Everett Millman told Kitco News. “And it's not even just the U.S. I've also heard some rumours about the potential for that to happen in Europe. The idea is popping up more and more now.”
Some kind of controls, including some form of confiscation, would be required, said Horizons ETFs portfolio manager Nick Piquard. “If you go back to the gold standard, gold becomes your money and you need to control gold,” Piquard told Kitco News.
At the end of the day, it depends what kind of policy the U.S. government hypothetically adopts, noted TD Securities head of global strategy Bart Melek.
“Would gold confiscation be part of it like in the 1930s? It doesn't have to be. The government can use whatever reserves it has at Fort Knox — take the obligation, divide it and set a price,” Melek said. “It depends what policy would be like. If policy didn’t want people controlling the money supply, then that's something that it might want to do, [especially if you think] that private agents could mess the pricing up.”
Important to keep in mind though that central banks are only independent as far as legislation allows it, which means that changes to the rules are not out of the question. “If tomorrow the Congress passes a new Federal Reserve Act and decides that the Treasury Department controls the Fed, there goes its independence,” Melek explained.
Setting the price of gold
Aside from the issue of confiscation, the other big question is just how high to set the gold price to make the gold standard workable in the current environment?
Piquard stated that gold would need to be five times higher from where it is today. “From that perspective alone, it's not practical,” he said.
Millman noted that gold could be priced as high as $5,000 an ounce. “That would basically just be to represent that the dollar is being devalued,” he said.
One of the more bullish calls was made by the best-selling author Jim Rickards. “If you are going to have a gold standard, or even use gold as a reference point for money, the implied, non-deflationary price is $15,000 an ounce,” Rickards told Kitco News.
Here’s his calculation: “If you just took the money supply of the Federal Reserve, European Central Bank, Bank of England, Bank of Japan and People’s Bank of China (that’s over 75% of global GDP) divide that number by the official gold [reserves], which are about 34,000 metric tons, you come to $15,000 an ounce.”
During the gold standard days, the United States Department of the Treasury had to set the price of gold higher as well, raising the level to $35 an ounce from $20.67 an ounce back in 1934
Would a gold standard even work?
The idea of the gold standard is treated by the mainstream forces as an extreme one, but maybe it shouldn’t be, said Millman.
“That's one of the more fascinating topics. Outside of someone like the Federal Reserve nominee Judy Shelton, it's basically treated as a ridiculous idea. But even though it's unlikely, we're closer to it than we've been since 1971,” he said. “It may not be a perfect system, but it's probably better than what we have now.”
The gold standard could even potentially work with today’s economy, Millman pointed out.
“I don't think it's a completely far-fetched idea. What a lot of people don't remember is that the gold standard allowed you to exchange dollars for gold directly. But they could print more dollars than what was being held in the gold reserve. The reserve had to back up only 40% of the dollars that were out in circulation. I don't see why we couldn't do something similar to that today,” he said.
However, this is just one side of the argument. Many analysts believe that there is a very good reason why the U.S. has abandoned the gold standard in the 1970s.
"There is very little probability that the U.S. would seriously consider the gold standard. That would certainly interfere with the Fed's ability to print trillions of dollars and support the market. It'd be an absolute problem for a central bank that wants to do QE [quantitative easing] or that wants to fund government,” Melek said.
The biggest problem with the gold standard back in the day was the difficulty of controlling the supply of gold.
“When the economy is growing for example 3% in real terms, how do you expand the money supply? You would have these sudden increases in real rates, where you would have the economy increasing and you couldn't grow it because you just couldn’t grow the mining supply. And that could cause very sharp bouts of deflation for a while. And then when the economy shrinks, you would have too much gold. You couldn't control that one either,” Melek explained.
At the end of the day, it comes down to which system is better at dealing with fluctuations in the economic cycles, he noted.
Imagine if the Fed did not intervene in March with trillions of dollars worth of funds to support credit markets, asked Melek. “In Q2, the U.S. GDP dropped 32%. Well that might have been 40% in Q2 and another 40% in Q3 if the Fed didn’t step in,” Melek explained. “It’s not going to be free. We were going to pay for it, most likely through inflation and erosion of assets.”
This is why central banks started to use monetary policy — to smooth out economic cycles by controlling inflation through interest rates, Melek added.
And even though going back to the gold standard is an unlikely scenario, it is possible that the global economy will see a shift away from the U.S. dollar, he noted.
Piquard also said that the more likely outcome is not a gold standard but a new reserve currency. “What we're seeing now is that the U.S. dollar reserve system is not working. There are not enough U.S. dollars right now for all the debt that we've created,” he stated. “This puts the Fed in a really tight spot and going back to what we used before, is not going to help.”
What Piquard envisions for the future is something along the lines of Special Drawing Rights (SDR), which are supplementary foreign exchange reserve assets maintained by the International Monetary Fund (IMF). The SDR is pegged with a basket of currencies, including the U.S. dollar, the euro, Chinese yuan, Japanese yen, and pound sterling
“That might be a better reserve system because it would potentially spread out the risk and take some of the weight off the U.S. dollar,” Piquard said.
Prominent voices
One of the reasons why Trump’s Judy Shelton nomination to the Federal Reserve is so controversial is because of her views on the gold standard.
Back in 2009, she began an op-ed in the Wall Street Journal with the words: “Let's go back to the gold standard.” She continued: “… a gold standard stands in the way of runaway government spending.”
In 2019, she wrote another op-ed piece, titled ‘The Case for Monetary Regime Change: Central bankers aren’t omniscient. A linked-currency system could improve economic growth’.
In it, Shelton argued for “reliable store of value across borders and through time,” explaining that “it’s entirely reasonable to ask whether this might be better assured by linking the supply of money and credit to gold or some other reference point as opposed to relying on the judgment of a dozen or so monetary officials meeting eight times a year to set interest rates.”
At one point, U.S. President Donald Trump also spoke about the gold standard, commenting on the issue back in 2016 in a GQ video interview prior to his election. In the interview, he stated: “Bringing back the gold standard would be very hard to do—but boy, would it be wonderful. We’d have a standard on which to base our money.”
Current Fed Chair Jerome Powell commented on the gold standard recently as well, pouring some cold water on the idea and providing a very contrasting view to that of Shelton’s.
“If you assigned us to stabilizing the dollar price of gold, monetary policy could do that, but other things would fluctuate,” Powell said during his semi-annual testimony before the House Committee on Financial Services last year. “This is why every country in the world abandoned the gold standard some decades ago.”
U.S. gold standard timeline
1879: The gold standard is adopted by the U.S.
1879 to 1914: The so-called classical gold standard era. One ounce of gold represents $21.
1933: The U.S. bans gold ownership. Franklin D. Roosevelt uses the authority granted to the president by the Trading with the Enemy Act to require all U.S. citizens to sell their gold coins, gold bullion, and gold certificates to the Federal Reserve in exchange for $20.67 per ounce. This is knows as Roosevelt's Executive Order 6102. Jewelry and rare coins are excluded. The process of seizing all the gold allows the governments to print more dollars and stimulate the economy.
1934: The value of the dollar in gold is changed from $20.67 to $35 per ounce.
1950s: Black market for gold is on the rise.
1971: The price of gold is no longer fixed to the U.S. dollar. Richard Nixon puts a halt on the U.S. dollar’s convertibility into gold. This means that other countries can no longer redeem dollars for gold.
1973: Nixon scraps the gold standard.
1974: Roosevelt’s Executive Order to nationalize all privately-owned gold is repealed and Congress restores the U.S. citizens’ right to own gold.
1977: Trading With The Enemy Act is amended, removing the U.S. president’s authority to control gold transactions during a period of national emergency, aside from during a time of war. At the same time, International Emergency Economic Powers Act is introduced, which gives powers to the president to regulate international commerce after declaring a national emergency.
2020: Trading With The Enemy Act and International Emergency Economic Powers Act are both still in force.
E.B. Tucker correctly predicted $2,000 gold price; he now sees this year-end target
As gold prices breached $2,000 an ounce and continue to march higher, one analyst sees momentum continuing all the way to $2,500 by year end.
E.B. Tucker, director of Metalla Royalty and Streaming and author of “Why Gold, Why Now? The War Against Your Wealth and How to Win It” said that this current bull rally has not run out of control, and is in fact, still going to going to continue at a measured pace.
“Normally I would say [the bull run is overheated] but what I’m seeing in the daily action is that gold is rising in a very measured way and is not meeting much resistance, so when that’s happening you just step out of the way and let it go, that’s what you do,” Tucker said.
The U.S. dollar has been weakening, and this trend of devaluation is not new, he said.
“This is not new. Back to Nixon in 1971, there was a period when they tried to hide the devaluation of the dollar. It’s a measured devaluation, they don’t want this to be reckless, we have an adjustment periods. We’re in that right now. So right now, the dollar value is the big deal,” he said.
Tucker noted that deflation is a bigger risk right now than inflation.
“What’s really hard for people is…deflation is the real problem because what happens is we’re swimming in too much money, so you have so much money that’s been created, and all that money that’s created over the last 10 years goes looking for investments. When all that money goes chasing for investments, the return on investments goes down, down down,” he said.
The stock market, although appreciating in nominal terms, is not really appreciating in real terms, adjusted for inflation, he added.
Investors should not be trading gold in the short term on leverage, because a short-term correction may occur at some point before prices hit $2,500 an ounce, Tucker said.
“This is a secular bull market. This is a bull market in gold that you’re probably never going to see in the course of your life again,” he said.
After $2,000 gold price, $4,000 is next – Frank Holmes doubles down on call
The fiscal and monetary conditions have never been stronger for gold prices, and while the yellow metal already broke records this week by hitting $2,000 an ounce, Frank Holmes, CEO of U.S. Global Investors, doubled down on his $4,000 an ounce by the end of this bull cycle call.
Price corrections can happen along the way, Holmes said, but gold investors should buy on the dip.
“Every time you have a secular bull market, there are many 10% corrections. So you can easily get a 10% correction in stocks, if you get a 3% correction in bullion,” Holmes told Kitco News. “It’s just recognizing that that ratio of 3-1 is important, and if you have the stomach to weather it.”
On the economy, Holmes expects inflation to rise, but rates to stay low, creating a negative real rate environment.
“The greater the negative real interest rates, the greater the price of gold,” Holmes noted.
Holmes comments come as gold has breached the much anticipated $2,000 an ounce last week. Spot gold last traded at $2029.70 an ounce on Wednesday.
However, money velocity, a measure of the frequency of consumer transactions and is used as a gauge for economic health, has been decreasing, suggesting the people are not spending money.
Holmes argued that money velocity is no longer a valid metric for measuring inflation.
“You just can’t use money velocity now as an indicator of inflation. That’s really an important factor. I think more important is to remember that since 1980 when gold went through $850 and silver $50 and the gold-silver ratio back then was 17-1, you had very high interest rates. It’s very important to put that into context with what we have today,” he said. “The calculations for CPI [the consumer price index] for when gold had hit $850 has changed many times.”
The gold-silver ratio has been dropping as silver has outperformed gold recently, and Holmes said that trend is indicative of more interest from investors in the metals sector.
Gold price has another $200 to go after soaring past $2,000 — analysts
Bullish momentum in gold took prices above $2,000 an ounce, the rally could have another $200 to go before seeing a slowdown, according to analysts.
December gold futures jumped to a new all-time high of $2,024.40 an ounce on Tuesday, last trading up nearly 2% on the day. Meanwhile, spot prices climbed above $2,000 for the first time, last trading at $2,004.20 an ounce, up 1.33% on the day.
Eyes are on lower yields, said TD Securities head of global strategy Bart Melek.
“There is a lot of momentum here. Maybe some short covering after we eliminated shorts the other day,” Melek told Kitco News on Tuesday. “The 10-year yields are the lowest ever at 0.5% and we've got 30-year yields at 1.1888. These are pretty significant lows here.”
Gold got a leg up along with silver and crude oil on the news of an explosion in Beirut, which triggered the fear of missing out, said Blue Line Futures chief market strategist Phil Streible.
“We saw silver, gold ,and crude oil take off on news of that explosion in Beirut. And then when they came out, when it came out that it turned out to be like a firework storage place next to like a nitrate factory, we saw silver futures fall 50 cents, gold fell $9. On that pullback, some of the guys that were afraid to miss out on gold’s price action wanted to get in and buy at all costs,” Streible said.
Anytime new highs are probed, the market gets two types of traders — “a guy who gets stopped out, who is short … and a guy who is afraid of missing out,” Streible pointed out.
“That’s what we are seeing now — fear of missing out and new stops being hit,” he said.
There is also a growing view out there that the Federal Reserve may move away from preemptive inflation targeting, stated Melek. “Typically they would guide. Sounds like they possibly could be moving away from that.”
Tuesday’s move up also comes after a slight correction on Monday, added Melek, noting that gold could be looking at $2,100 next.
“We are at a record level. The next big Fibonacci would be $2,110 — this is where the 2011 gold high really is if you were to adjust for inflation,” he said. “Out target average for end of next year is at $2,100.”
The bull market looks healthy even above $2,000 an ounce, said Streible.
“All the technicals line up really good. As long as the lower real yields occur and the dollar continues to weaken, you’re going to continue to see gold bank all the time highs,” Streible told Kitco News. “It’s a pretty healthy bull market right now. The ADX, which measures the strength of the trend, is at 44, which says that it's a healthy, upward trending market.”
Gold tends to shoot for round numbers and $2,200 could be next for gold, added Streible.
“It seems like the more people talk about round numbers, the more they become like a self-fulfilling prophecy. Once it got to $1,921, we had to go to $2,000,” he said. “The $2,200 is the next resistance level based on the breakout at $1,857 to our most recent consolidation. That would be the Fibonacci extension.”
Streible also warned that, at the same time, this could be the high in gold if news of a successful vaccine rollout hit the market.
