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Can Gold’s Bull Run Withstand Increased Interest Rates?

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Can Gold's Bull Run Withstand Increased Interest Rates?

Gold charts, with continued market confidence in the metal, have seen a price climb this year. 

All the uncertainty that formed during the build-up of, and the shock of the Brexit result, combined with negative interest rates have been the reasons behind the rise.

gold-1

As can be clearly viewed in the above gold chart, the price of gold this month has risen in a predicted trend.

The increase is linked to following reasons, to re-emphasize the causes mentioned above:

  • General global political and market unrest due to the world awaiting the Brexit results and the reaction following the decision.
  • Cheap central bank interest rates that are driving ROI (return on investments) down.

Consumer prices in the first world have remained consistently in the doldrums, despite injections from the government to boost the economy. 

Unless they rise soon, market investors will turn to gold as a sure bet for long-term sustainable growth and ROI. 

This outlook is causing the gold price to continue a seemingly relentless climb.

Investing in gold has always been seen as a comfortable hedge against inflation. 

This stance is not just one taken by the professional market investors, but is a common thread of thought in the lay public as well, especially more seasoned and mature armchair investment dabblers.

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According to recent analysis by TD Securities researching charts all the way back to the 1970s, gold has consistently gained an average of 24% every year during times of high inflation. 

Even though there was a slight dip last week in price, Gold futures once again rose to a further US$1.90 gain (+0.1%) giving it a price fixed at US$1328.40 a troy ounce on its Comex division at the New York Mercantile Exchange.

This winning streak is very much expected to continue according to investors and analysts. 

It is being bruited around the markets that this extended bull run on gold will lead to a continued high price settling.

With a glance at past reports from TD Securities below, the low-interest rates (in black) and the high prices of gold (in green) are proving the data they said. 

TD Securities show how high expectations of what possible interest rates on ten-year government bonds may set to be in future predicted influences the gold price.

gold-2

One of the analysts at Gabelli Gold Funds, Chris Mancini, states that a predicted bull market is forecast this year. 

He goes on to further say it will result in gold reaching its 2011 high that took the price of gold above US $1900 an ounce.

Other forecasts from analysts predict:

  • Gold could hit $1,425 this quarter according to ABN Amro Group NV
  • An average price of $1,350 could be recorded for this same period according to Commerzbank.
  • Capital Economics predict gold will be trading at $1,450 by the middle of next year.

There is one concern that has been left hanging in the air. 

What will be the outcome if inflation never arrives? 

During its last bull run, the gold prices were driven in part by expectations that are mirroring the attitudes now current: that inflation is predicted to rise. 

This drove the price peak of 2011 and inflation never arrived.

The interest rates of the First European Bank have just been cut to a minus -0.4% rate and approximately the equivalent of US $88 billion has been spent every month buying up corporate and government debt. 

Still, consumer-price inflation in the Euro currency zone stagnates at 0.1% reported in June. 

The region has been in a paralyzing state of deflation since December 2014.

This state is not expected to remain for long, and economists predict that inflation will rise. 

But this is not supposed to impact on consumer-price increases.

With a look at the analysts’ prediction below, who offered a 12-month price target for the Seven Group Holdings Ltd, they have set a median target of 5.26 in the share price forecast:

gold-3

The Group of Seven Holdings Ltd advanced economies consensus inflation forecasts predicts a rise of 1.8% for 2017 and a gradual snail pace climb to 1.9% by 2020. 

Share prices as reported above will show a likewise slow crawl up.

Two nations, that are considered key gold buying countries, are predicted to display inflation rises respectively of:

  • 2.9% for China and
  • 4.9% for India

The United States has historically followed a cautious path when it comes to rate increases

They are always linked to the failure of the current government in the voters’ minds and are guided by the governments’ need to keeping an eye on re-election. 

Academic analysts and more than a few business analysts, however, who were recently polled by the Wall Street Journal expect an increase in rates announced soon by the Federal Reserve.

It would follow then that the U.S. dollar would rise, and the dollar-linked metal would then become more expensive for the currencies of other countries. 

When gold is seen as less competitive, this will lead to an increase in the desirability in other avenues of investment like treasuries.

To see how closely the gold price is linked to the dollar, please look at the chart below:

gold-4

Despite doubts as to the viability of the high gold prices, both investors and the gold industry alike are having an outstanding year. 

The mining sector is perking up a bit in its wake and the third world gold producing countries are heaving a sigh of relief.

It is only to be hoped that the continued high prices do not deter the central long-term gold buying countries like India and China, who are the backbone of sustained gold price highs.

 

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Commodities

Latest Update On Oil – Expected to Settle Between $45 and…

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“Oil is going to a new price point because of the revolution in production,” said Bill Perkins, chief investment officer of energy-focused hedge fund firm Skylar Capital Management. Perkins believes the price of crude could fall as low as $45 a barrel. He is personally short, a bet that the price of the commodity will drop. He believes oil will settle between $45 and $80 a barrel in the next year.

“Companies are harnessing amazing new technology to destroy the traditional energy value chain,” Perkins said. “There’s a lot of money to be made on that.” “U.S. energy names remain a significant net exposure for equity long/short managers who added longs and cut shorts after October’s trough,” the report said. “If pressed, one could interpret this positioning as bullish for energy stocks.”

Andurand thinks crude might hit $50 a barrel within the half-moon of 2015 and so rebound to a high of $70 within the fourth quarter. He also said the oil market is oversupplied by between 1.5 and a couple of million barrels per day, given weak demand, low disruptions to produce and enhanced production by nations that do not belong to the Organization of the oil mercantilism Countries.

“OPEC is not the swing producer anymore. U.S. shale oil producers are, but will take more time to react to prices than OPEC—it is a game changer that will lead to more volatile prices and bigger price ranges,” he added.

Morgan Stanley aforesaid the worth would wish to fall as low as $35 or $40 a barrel to prevent production and rebalance provides.

Still, the bank noted that the worth can doubtless rise eventually.

“Oversupply is probably going exaggerated and therefore the market is also content regarding side risks,” the report aforesaid.

Read More at CNBC

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Commodities

Investing in Energy Markets Part 2: Oil, Gas and Energy

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It’s no secret that the energy industry is very profitable, with oil and gas making up 80% of the market.

 

Thus, these two resources attract the most people. They are the best energy investment resources due to high demand and wide range of options. However, with energy scares fresh in our recent memory and the climate change movement greatly affecting energy policy, new alternatives are constantly being sought.

Terror group ISIS may make $3 million a day selling oil

Everything that we do requires some type of energy. As a result, the price of energy affects the going rate for other commodities as well. When the price of oil increases, the price of transporting goods goes up as well.

That is why the cost of milk fluctuates and why your favorite imported coffee beans are more expensive than Folgers. Factors that contribute to these prices include geopolitics and natural disasters, but can never truly be accounted for in full. That is one of the underlying points to understand and accept about energy markets. Something can always go wrong. Typically, it doesn’t, but when it does things can get hairy and fast.

TYPES OF ENERGY SECTORS: That could affect your Household

Nuclear Nuclear power actually produces 1/10th of the world’s power, without emitting carbon. The United States and China have roughly 75% of the world’s nuclear plants with India and Russia also tapping into the market.

“Green” and renewable energy companies You can invest in different companies that place an emphasis on renewable resources by using the stock market. This option is optimal for investors who like the idea of green technology but do not now want to run the risk of investing in developing companies directly. This market has always been tricky from an investment perspective due to volatility. If you have an appetite for risk, however, this is a good place to look.

Modern Energy (solar, wind, geothermal, transportation, efficiency) Modern energy is made up of three major components or categories. They are wind, solar and biomass. The renewable sector is expanding at a rapid rate. We have witnessed a steady employment increase in the energy sector since 2011 with no end in sight. All types of investors and speculators are flocking to the natural resource markets in attempts to get out ahead of the renewable energy trend that could be the way of the future.

Big Oil In 2010, the world market for oil witnessed an incredible increase of 32%, to over $2,100 billion. According to estimations of oil segment professionals, the market’s value will hit $2,683 billion in 2015. The competitiveness of the global market of the crude oil is explained by its limited resources and mankind’s insatiable appetite for growth. This factor should not be disregarded easily. Our desire for more explains the majority of the energy marketplace.

Gas sector The market of natural gas reached $18.5 billion by the end of 2011. Demand for gas has recovered to match and surpass pre-recession levels. The US prices for gas are half of those in Asian countries and the EU. Gas demand decreased 3% in 2009, but at present is on the rise.

Electricity Buying the stock of electricity companies is the preferred way of entering this marketplace. The majority of the participation in electricity markets, however, takes place in the futures markets. Since power companies are constantly projecting and calibrating their loads, the futures market is the only place where investors with this sort of risk profile will feel that they belong.

Coal Many non-coal energy sectors directly depend on the performance of coal because burning coal has been proven to produce enough energy to support high demand. Due to recent regulations in the US by the Environmental Protection Agency, coal has taken a minor hit, but until a massive, institutionalized adoption of newer technology, it is highly unlikely coal will be going anywhere for the foreseeable future. In other words, coal is very much a barometer for this market. Though it is unlikely to happen any time soon, a massive dip in coal production would likely signal the emergence of a new viable energy source.

Hydro Hydropower energy is still very limited but there has been over $75 billion in investments pledged to R&D before the year 2020. There are some companies worth checking into, but for now this is very much a long term play.

Energy Funds These funds are established with companies related to the energy field. Be aware that some energy funds are more successful than others and produce a higher return than others. Often times, the energy funds are established to diversify various portfolios and minimize risk.

Read more on How Natural Resource Distribution affects your wealth

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Commodities

Oil Prices Surge As OPEC Members Agree To Cut Production

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The Organization of the Petroleum Exporting Countries (OPEC) took its first action in years to cut production on Wednesday in hopes of lifting oil prices. How big a cut did the cartel agree to? Will it really make a difference?

OPEC Members Agree To Cut Oil Production

Oil had its biggest day in more than five months as prices rose 5.3 percent. This action came after OPEC members agreed they could limit oil production – in November. While there are a lot of maybes, this is a big step forward for oil. But will it actually work?

While OPEC members agreed at a meeting Wednesday in Algeria that a production cut is needed to lift oil prices, plans for the supply cut won’t be finalized until November. Barrel output will go from 33.25 million barrels per day to 32.5-33 million barrels per day. A lot can go wrong between now and November, but for now investors love the news.

Many analysts, however, are not as optimistic.

This isn’t the first time this year OPEC has tried to cut oil supply. The committee met in April, but talks fell apart when Iran would not join the talks. In addition to that, all the OPEC countries compete against each other and the U.S. for market share. Several OPEC members, Iran, Libya, and Nigeria, all want to increase oil supply. Throw into the mix the political tensions of the group and this agreement seems very delicate.

Yet, there is a positive feeling about “this time”. Members are hoping that things are more conducive to getting a deal done. Many of the largest producers are close to maxing out capacity, so lowering output slightly wouldn’t be too much of a stretch. Additionally, Saudi Arabia and Iran are feeling pressure domestically from the drop in oil prices, and thus be willing to put aside differences to improve their finances.
Wonder why OPEC needs to cut production? Check the news here with CNNMoney!

For now, trading oil is a smart play. Exxon Mobil Corp. (XOM) rose 4.40% on the news. Chevron Corp. (CVX) rose 3.20%. Energy companies and oil shares will go up until november, and then take their cues based on that meeting.

The election is coming the Capitalist gives you the guide to thriving the election year markets. Read it all here!

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