There’s no doubt that gold is now in a bull market.
At the start of 2016, there were high hopes for the metal as investors’ anxiety over China and the global economy caused oil price fluctuations and stocks turmoil.
“Gold benefited since it’s universally regarded as a safe haven for trade in times of turmoil. It’s a hard, tangible asset and not pieces of paper like currencies, stocks and bonds,” explained Paul R. La Monica, a correspondent for CNNMoney.
Indeed, gold has soared 20% so far this year. Here are the top 4 reasons gold set to skyrocket. These indicators show that it will continue to rally even as oil prices and stock rates stabilize.
— The Capitalist (@Capitalist_Site) April 28, 2016
1. The Fed’s zero-interest move.
In a March 7 interview with TRUNEWS, economic forecaster and CEO of Euro Pacific Capital Inc. Peter Schiff predicted that the Fed will go back to zero interest rates and quantitative easing before the presidential elections in November. This, Schiff said, will drive up commodity prices even faster. He added that $1,300 an ounce is the key marker for next gold surge and that it could go up to $1,500 to $2,000 an ounce.
Schiff said, “I think we’re going to see much higher prices as the year progresses.”
MarketWatch columnist Michael Brush echoed Schiff’s pronouncements. “When the Fed raises rates, the dollar is driven higher because foreign investors are drawn to U.S. assets. They’re chasing higher interest rates and the more robust economic conditions that causes the Fed to hike rates.
They have to buy greenbacks, which pushes the dollar higher. In contrast, the dollar is weakened when the Fed signals it will delay rate hikes. That’s where we are now,” he wrote.
Brush added, “The dollar and gold have a natural inverse relationship. Dollar down, gold up.”
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2. China’s crisis.
At the start of the year, American business magnate George Soros issued a waring about an impending financial crisis like the one experienced in 2008. He pointed out that the situation was brought on by China’s struggle to find a new growth model. Thus, as Soros told Bloomberg, the country’s currency devaluation was “transferring problems to the rest of the world.”
Soros stated, “China has a major adjustment problem,. I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008.”
Such a prediction had many investors scrambling to get their hands on more safe haven assets such as gold.
3. The supply issue.
Since 2011, the world’s gold producers have cut back on their exploration budgets. This was an understandable move, as the price of gold had been on a decline for the past several years. Thus, the world’s eight largest gold producers are set to slash cut cumulative exploration spending by 36.5%.
Compared to what they spent in 2011, they’ll spend $622.7 million less in exploration this year.
The decrease in exploration budgets means that the industry has spent less money looking for gold, so, naturally, there is less gold. “This trend shows no signs of reversing until gold prices are significantly — and sustainably — higher,” said Jeff Clark, senior precious metals analyst for Casey Research.
On top of that, there is a decline in mineable reserves held by the world’s largest gold producers.
Clark further explained, “Slashed exploration budgets, production declines, and plunging Reserves clearly paint a sobering picture for future mine output. It’s important because the world’s most significant source of physical gold comes from mining. It doesn’t take a rocket scientist to see that at current levels of demand, low gold prices will impact supply — and in turn will push gold prices higher.”
4. Global unrest.
There are several places in the world that are under the threat of war such as the Middle East, Ukraine, Syria, and the South China Sea. Market analyst Gary Christenson noted:
“History shows in troubled times the preferred asset is gold, not devaluing paper currencies issued by insolvent countries and central banks, which could lose control over interest rates and that will pose a huge risk to the global financial system.”
Thus, Christenson, predicted, “Expect much higher gold prices as rising interest rates force insolvent governments to more aggressively monetize debt and devalue their currencies.”
Despite the signs that gold prices may continue to soar, The Wall Street Journal revealed that some financial analysts think that the safe-haven boost may be short-lived.
For instance, the gains in gold that came out of the civil war in Ukraine and the China-induced turmoil in 2015 only lasted for days. David Wilson, director of metals research and strategy at Citigroup Inc., said, “You tend to find geopolitical issues tend to only be short-term drivers or supporters for gold.”
In any case, a good number of market analysts and investors are still putting their faith in gold. In fact, respected resource investor Ross Beatty started buying gold in 2015.
He had explained, “Why do I like gold? Partly because I’m a contrarian and nobody else likes it now, always a great bottom indicator. I like it because it’s money and has always maintained its value over millennia, and partly because its supply fundamentals are pretty good right now. Partly because it’s a kind of refuge in the storm that’s blowing around the world financial markets today with unprecedented moves in currencies and energy prices, geopolitical events, religious events, environmental events and on and on.”
He further explained, “I’m not a real gold bug but I have to say that the older I get the more I feel comfortable in owning big gold resources in the ground managed by excellent people in low-risk deposits. Even if I’m wrong about gold and silver price moves (I expect gold will trade over $2,000 an ounce by 2020 at the latest) these companies should outperform the market because they’re well run and have large mineable deposits at reasonably low gold prices, and if gold moves they will profoundly outperform the gold price.”