Investors shouldn’t worry about the recent slump in gold prices, because it will head to $10,000 per ounce later this decade, says Leigh Goehring, managing partner of Goehring & Rozencwajg Associates.
He says gold prices, which fell to a 2-month low, could fall even further before starting the next leg higher. But, instead of worrying about lower gold prices, he says investors should see it as an “aggressive buying opportunity.”
“We believe gold could pull back as we progress through the fall. Gold looks to have peaked in the first leg of this gold bull market at $2,070, and it looks now to have rolled over,” he added. He also said they won’t feel “surprised if gold pulls back in the next three months to its 200-day moving average, which today sits at about $1,720.”
Factors Goehring Considered
Goehring’s bearishness on gold is due to a few factors. He expects more weakness in the gold price this fall due to the possibility of a contested presidential election. A coronavirus vaccine and stagnation in the growth of the Federal Reserve’s balance sheet may also cause this.
Goehring says a decisive victory by either candidate in November will remove much of the fear of a contested result. This would pave the way for the market to move higher and put pressure on gold prices.
“Indices such as the VIX indicate a huge amount of fear, anxiety, and turmoil has now been priced into the market regarding the potential outcome of a contested election. If Donald Trump or Joe Biden win a convincing victory, and the 2020 presidential election is concluded with minimal disruptions surrounding the integrity and validity of polling returns, this could potentially add some downward pressure to gold prices,” he said. “The markets are expecting election trouble, and if this doesn’t happen, we could see a sell-off in ‘risk-off’ assets such as gold.”
He is also watching the potential for a coronavirus vaccine, which would accelerate the economic recovery.
“If investors become convinced that an effective vaccine could be rapidly introduced, and that economic activity and recovery could proceed without COVID-19 fears, gold could come under selling pressure as investors sell an asset class that has benefited hugely from all the COVID-19 related economic dislocations,” Goehring said.
The Federal Reserve’s Actions and Gold Prices
The Federal Reserve is actually shrinking its balance sheet recently. With this, Goehring is also keeping an eye on how that will affect gold prices.
“Gold has benefited hugely by the massive expansion of the Fed’s balance sheet over the last six months. However, the Fed’s balance sheet has stopped growing, and this very important underlying factor for gold’s recent $800 move in price has now been pulled away,” he added.
However, Goehring says one thing the Fed can’t control is the amount of inflation that is coming. This comes with all the money printed around the globe, including by the Federal Reserve. Inflation, says Goehring, is what will kick off the second leg of the gold bull market.
He says we should use “The weakness in the gold price that we expect” as an opportunity for buying aggressively. “We are firm believers that the second leg of the gold bull market will be driven by inflation that will emerge as the world undergoes an economic boom caused by rapidly receding COVID-19 fears, and excess fiscal and monetary liquidity caused by governments and global central banks,” Goehring said.