Neils Christensen


The Federal Reserve has pumped trillions of dollars to stabilize the U.S. economy and financial markets devastated by the COVID-19 pandemic. With that trend expected to continue for the foreseeable future, one market strategist said the best way not to fight the central bank is by investing in precious metals.

In an interview with Kitco News Mike McGlone, senior commodity strategist at Bloomberg Intelligence, said the gold market is looking a little stretched. Prices have pushed to a record high and within striking distance of $2,000. He added that fundamentally, gold is nowhere near overvalued levels as the U.S. central bank continues to pour money into financial markets.

McGlone said that he would recommend investors look to buy gold on dips as the price could continue to hover around $2,000 through the U.S. November elections.

“In the short term, we have gold about 21% above its 52-week mean, that’s the most since the peak in 2011,” he said. “You don’t want to be the first buyer at these levels. Anytime gold gets this high above its 52-week average, you got to expect consolidation.”

Although gold investors should be a little more strategic with their buying, McGlone said that they shouldn’t lose sight of the bigger picture, which is materially higher gold prices. McGlone reiterated his call that gold will needs to get “stupidly” expensive before this rally ends and that could mean prices above $4,000 an ounce.

“Basically, after 2008, gold dropped around $700 and then it rallied around three times to the peak in 2011,” he said. “So just a simple rhyme of history means we get to near $4,500 and it’s about time. You just have to look at debt to GDP, look at central bank balance sheets, and they’re just on an upward trajectory.”

As to what gets gold to those levels, McGlone said that investors should continue to watch equity markets. With bonds providing investors with no yield, a bear market in equities would drive gold’s safe-haven appeal, he said.

“Now the rock is beating stocks. There’s a sense in the market that the bull market in stocks is over… and gold should take off,” he said. “That, to me, is the next big trade.”

Although the Federal Reserve’s unprecedented monetary policy measures are artificially driving stocks higher, McGlone said this factor is seeing diminishing returns. He added that it’s only a matter of time before the effects of the Fed’s money printing wears off.

“The S&P 500 is almost up 200%, 300% over the last ten years. It just can’t continue to do that. Not without strong, solid economic growth earnings,” he said. “Yes, we’re getting a bid from monetary, fiscal stimulus, but that is dicey and that’s not going to last.”

Author: Neils Christensen

Source: Kitco: An impending equity bear market will ultimately push gold price to $4,500 – Bloomberg Intelligence

(Kitco News) – The stars continue to align for the gold market and with prices reaching historic highs, the next target is $2,000 an ounce, according to one market strategist.

Despite the near-term bullish outlook, Georgette Boele, senior precious metals strategist at ABN AMRO, reaffirmed her year-end gold target at $1,900 and for prices to hit $2,000 an ounce by the end of 2021.

Although the gold market appears to be in an unstoppable rally, in a report Tuesday, Boele cautioned investors that the market is starting to look crowded. She added that the risk is that any shift in investor sentiment could cause speculators to flee the gold market, driving prices down sharply quickly.

“It is likely that gold prices will test $2,000 per ounce in the near-term. But we still expect some profit-taking after that. So, we keep our gold price forecasts unchanged,” she said.

One significant risk for gold is a near-term reversal in the U.S. dollar, which recently fell to a two-year low. However, any short-term correction should be viewed in the long-term bullish environment.

“We still expect a sizeable correction in gold prices in a risk-off environment when the dollar is back in favor,” she said. “It is likely that this correction will be short-lived and be a buy-on-dips for investors eagerly waiting to step in.”

Boele said that she sees five major factors providing long-term support for gold prices: a weaker U.S. dollar, low to negative bond yields, growing government debt, aggressive monetary policy easing and strong technical momentum.

Looking at the U.S. dollar, Boele said that it appears that the greenback is losing its safe-haven appeal as the market deals with geopolitical uncertainty. Along with boosting gold, U.S. monetary policy is also weakening the U.S. dollar as the Federal Reserve continues to pump trillions of dollars to stabilize financial markets.

“Official rates are close to zero in a large number of countries and they will unlikely go up in our forecast horizon,” said Boele, “This sounds like music to the ears of gold bugs as money floods into the market and currencies begin to decline.”

Looking at interest rates, Boele noted that many countries around the world already have negative nominal interest rates. The U.S. has been the biggest hold out; however, Boele said that even if U.S. nominal rates remain positive, real rates are headed to negative territory as inflation expectations pick up.

“As long as there are expectations that the Fed would move to a form of yield curve control, the upside in U.S. Treasury yields is limited. So, if investors are concerned about inflation, in the long run, this will be visible in inflation expectations and negative U.S. real yields,” she said.

Finally, Boele said, along with monetary policy, governments with their fiscal stimulus measure are also adding to the potential inflation threat. However, she noted that inflation won’t be a significant concern for investors.

Author: Neils Christensen

Source: Kitco: Only a matter of time before gold price hits $2,000 – ABN AMRO

(Kitco News) – The gold market is taking a bit of a breather as prices continue to consolidate above initial support above $1,800 an ounce, but one market analyst continues to see potential for prices to continue to move higher.

August gold futures last traded at $1,807.50 an ounce, down 0.35% on the day.

“With the dollar punching at major support, U.S.-China tensions on the rise and real yields moving deeper into negative territory, the foundation for a move higher is there,” said Ole Hansen, head of commodity strategy, in a market report published Wednesday.

One of the biggest factors Hansen continues to watch is the bond market as speculation continues to grow that the Federal Reserve will introduce yield curve control measures as early as September.

He added that rising inflation in a low interest rate environment means that real bond yields can move even deeper into negative territory. He noted because of current economic conditions, bonds are useless as safe-haven assets, making gold the attractive investment to own.

“The U.S. bond market has since April behaved as if yield-curve control was already in operation. While the yield on U.S. ten-year Notes have been anchored within a relatively tight range between 70 and 80 basis points , the real yield and breakeven have moved in opposite direction,” he said. “A development supporting the fundamental investment case for holding precious metals in a balanced portfolio.”

There is also growing political will for higher inflation as governments continue to unleash massive amounts of fiscal stimulus measures to revive the global economy, devastated by the COVID-19 pandemic.

Although the gold market is seeing unprecedented bullish sentiment and investor interest, Hansen said that the market might need to see lower prices to attract fresh capital.

“The chart highlights a market in need of a deeper correction and a longer period of consolidation. So far however, the underlying investment demand has been strong enough to prevent this from happening. Demand for bullion-backed ETF’s remain firm with total holdings continuing to reach fresh record highs,” he said.

Author: Neils Christensen

Source: Kitco: Gold market taking a breather but bullish trend remains in place – Saxo Bank

(Kitco News) – The gold market is still at risk of a short-term correction due to shifting investor sentiment, but the move past $1,800 creates a bright future for the precious metal, according to one Dutch Bank.

In a report Thursday, Georgette Boele, precious metal strategist at ABN AMRO, said that the stars continue to align for the gold market as prices have cleared an important psychological hurdle through $1,800 an ounce.

While reaffirming her outlook for gold prices to end the year near $1,900 an ounce, Boele updated her 2021 forecast; she said she now sees gold prices ending next year around $2,000 an ounce, up from her previous target of $1,800.

“Now the psychological resistance of USD 1,800 per ounce has been surpassed. It seems that investors will only be satisfied if the former peak in gold prices at USD 1,931 per ounce is reached and taken out. Above that the important psychological level of USD 2,000 per ounce is within reach,” she wrote in the report.

However, she added that the market is still at risk of a short-term correction.

“Speculative positions are substantial and positions in ETFs are at an all-time high. If investor sentiment deteriorates, some of these positions will likely be closed,” she said. “This will cause higher volatility in gold prices. We still expect a sizeable correction in gold prices in a risk off environment when the dollar is back in favor.”

Despite some potential weakness in the near-term, Boele said that investors should keep their focus on the long-term uptrend.

“It is likely that this correction will be short-lived and be a buy-on-dips for investors eagerly waiting to step in,” she said.

Boele said that gold will continue to be an attractive safe-haven asset as interest rates are expected to remain low and governments continue to add to their burgeoning deficits.

Although the Federal Reserve is not expected to introduce negative interest rates, Boele said that real rates are already there and could fall even lower as inflation risks start to rise.

“As long as there are expectations that the Fed would move to a form of yield curve control, the upside in U.S. Treasury yields is limited,” she said.

Author: Neils Christensen

Source: Kitco: Gold prices to hit $2,000 in 2021 – ABN AMRO

(Kitco News) – Gold futures are trading solidly up and at daily highs in late-morning action Tuesday, hitting an 8.5-year high just above $1,800.00 as traders stepped in to buy the early dip in prices, in a market that is technically very bullish and just got more so. Now, the powerful yellow metal bulls are setting their sights on the all-time high of $1,920.70 in Comex futures, set in September of 2011. August gold was last up $15.70 at $1,797.00.F

Author: Neils Christensen

Source: Kitco: Gold futures prices push above $1,800, hit 8.5-year high, as bulls hit the accelerator

(Kitco News) – Gold miners need to invest billions of dollars in exploration if they want to maintain 2019 production levels, according to the latest research from Wood Mackenzie.

In a report published Wednesday, Rory Townsend, head of gold research at the research firm, said that the mining sector needs to invest $37 billion by 2025 if the sector wants to maintain production levels reported in 2019. He added that the idea of peak gold continues to grow as companies haven’t replaced current production.

“Prior to the coronavirus outbreak, peak gold supply was becoming a real possibility. Now, with exploration programmes paused or cancelled and project disruptions hampering production, the summit is in sight,” Townsend said.

According to the firm’s latest research, the mining sector needs to find about eight million ounces of gold by 2025 to maintain current production levels. This equates to developing about 44 projects.

“If all our probable projects were to come online before 2025, this would almost meet the requirement to maintain 2019 production levels. The likelihood, however, is that we see some degree of slippage among a number of these assets due to permitting delays, prioritisation of other capital projects and changes in scope,” Townsend said.

Looking at how the mining sector should fill the impending production pipeline gap, Townsend said that smaller might be better. He noted that smaller projects will require less capital and would be easier to permit.

“At a time of heightened economic uncertainty, the largest gold projects may struggle to secure financing until there is more clarity,” Townsend said. “Smaller projects are proving an exciting proposition. They have the advantage of a lower initial capital outlay and can be typically brought online with speed and efficiency, particularly open pit deposits and mines that have previously been in operation. The drawback to these projects, however, is the fact that they will struggle to nudge the needle for a material gold producer.”

Author: Neils Christensen

Source: Kitco: Gold miners need to invest $37 billion in exploration by 2025 to avoid a peak production – WoodMac

(Kitco News) – Growing hope that the global economy will experience a sharp recovery after it was devastated by the COVID-19 pandemic will impact gold prices, but one research firm noted that there is still enough uncertainty to support gold prices through the rest of the year.

The $1,700 level continues to prove to be a formidable support level as prices have managed to regain some of the lost ground after Friday’s nearly 3% drop.

Although gold has struggled to find momentum, caught in a fairly tight range for the last two months, analysts at said that the prices still have a long way to go before the current uptrend is put at risks.

In their technical outlook as part of the firm’s second-quarter gold report, published Monday, the analysts said that they remain bullish on gold as long as prices hold above long-term support above $1,500 an ounce.

“Failure up around $1,733 would risk a larger correction heading deeper into Q2 – that said, the broader outlook remains constructive while above $1,522, with a breach/close higher targeting subsequent topside objectives at fresh multi-year highs,” the analysts said.

Looking at the top side, the analysts said that prices have to push above critical resistance at $1,795 before it can look at making a move back to all-time highs

Looking at the fundamentals, the analysts said that the market could still be susceptible to some selling pressure in the near-term as the economic impact of the coronavirus has peaked.

The analysts noted that it’s still unclear what kind of activity the global economy will see through the rest of the year. They said that the threat of a prolonged recovery remains. The comments come after the U.S. government said in Friday that 2.5 million jobs were created in May, significantly beat expectations.

“The threat of a protracted recovery may become more evident if the social distancing rules stay in place throughout 2020,” the analysts said in their report.

Despite the near-term challenges, DailyFX continues to expect the precious metal will remain in a uptrend.

“The price of gold may continue to exhibit a bullish bias through the remainder of the second quarter as the COVID-19 pandemic saps investor confidence, and fears of a protracted recovery may heighten the appeal of the precious metal especially as major central banks push monetary policy into uncharted territory,” the analysts said.

Author: Neils Christensen

Source: Kitco: Gold price uptrend is a long way from being threatened – DailyFX

(Kitco News) – Gold prices are staging a late-day rally Wednesday as tensions between the U.S. and China continue to escalate.

Comex June gold futures pushed back above a critical chart level of $1,700 an ounce after U.S. Secretary of State Michael Pompeo said that Hong Kong is no longer politically autonomous from China. June gold futures last traded at $1,711.10 an ounce, up 0.32% on the day.

“Hong Kong does not continue to warrant treatment under United States laws in the same manner as U.S. laws were applied to Hong Kong before July 1997,” Pompeo said in a statement. “No reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China, given facts on the ground.”

According to some analysts, the new stance on Hong Kong could have far-reaching consequences for the former British colony, including visa restrictions and even the threat of imposing tariffs.

“I think the potential for a new trade war with China could be a trigger for new gold buying,” said Bart Melek, head of commodity strategy at TD Securities.

Phillip Streible, chief market strategist at Blue Line Futures, said that escalating trade-war tensions will create some short-term volatility in the marketplace and help gold hold critical support.

“I think gold was an excellent buy below $1,700 an ounce because there are no many unknown factors driving market uncertainty,” he said.

While the latest move by the U.S. government is creating some buying momentum in gold, Streible said that there is not a big contest between the U.S. and China in a trade war.

“China is trying to flex its power but it really just doesn’t have much, not when compared to the U.S.,” he said.

Although trade tensions will add episodic volatility to markets, both Streible and Melek said that investors need to pay attention to the broader themes driving gold prices.

“The entire world is papering over its problems and will be good for gold,” Streible said.

Melek said that gold prices will continue to be caught in a tug-of-war between deflation and inflation.

Melek added that the global economy continues to face deflationary threats as the world adjusts to lower growth expectations as the COVID-19 pandemic has decimated the global economy.

He explained that deflation will push real interest rates higher, making gold less attractive. However, the key for gold will be how policymakers react to deflation.

“Governments and central banks have said that they will do whatever it takes to drive economic growth back to normal levels,” he said. “This reaction will drive inflation and push real yields back down and gold prices higher.”

Author: Neils Christensen

Source: Kitco: U.S. trade war tensions drive gold prices back to $1,700 – analysts

(Kitco News) – Federal Reserve Chair Jerome Powell put to rest Wednesday all speculation that the central bank will introduce negative interest rates. But Powell’s line in the sand is not expected to spook gold prices, according to analysts at BMO, who see higher prices through the rest of the year.

Colin Hamilton, commodities analyst at BMO Capital Markets, said that unlimited quantitative easing and interest rates holding at the zero-bound target for the foreseeable future should continue to support gold prices.

“Fed has more policy cards up its sleeve, and is more than willing to play them to promote economic recovery,” he said in a note Thursday. “Overall, with the Fed still offering clear support, we see the environment as still supportive of elevated gold prices.”

Growing risks-off sentiment in financial markets is helping to push gold prices higher Thursday. June gold futures last traded at $1,738.20 an ounce, up more than 1% on the day.

Also in the note Douglas Porter, BMO Nesbitt Burns’ chief economist, said that negative interest rates might not actually help stimulate the U.S. economy that grounded to a halt after states closed all nonessential business and asked people to stay home to slow the spread of the virus.

He described negative interest rates as “economic black holes.”

“They have tremendous gravitational pull as you approach them, they distort all manner of physical (and economic) laws as you enter them and they are almost impossible to escape,” he said. “While negative rates cannot be ruled out in the U.S., the BMO view is that they should only be used in an emergency situation where every other option has been deployed, including more QE.”

Last month, as the global economy continued to reel from the effects of the spreading coronavirus, BMO increased its gold forecast for the year. The bank said that it sees gold prices averaging the year around $1,654. For 2021 the analyst see gold prices averaging the year around $1,698.

In Wednesday’s webinar hosted by the Peterson Institute for International Economics, Powell was unambiguous in his rejection of pushing interest rates into negative territory.

“Negative rates is something we are not considering, we have a good tool kit,” he said. “The tools we are using: forward guidance and asset purchases work and that is what we will be using.”

Author: Neils Christensen

Source: Kitco: Gold price doesn’t need negative interest rates to go higher – BMO

(Kitco News) – The gold market went on a 30-minute rollercoaster ride as traders listened to the latest comments from Federal Reserve Chair Jerome Powell.

June gold futures rallied to session highs as Powell started to speak during a webinar hosted by the Peterson Institute for International Economics. He reiterating his call that the central bank would continue to do whatever it took to support the U.S. economy that has been devastated by the COVID-19 pandemic.

However, the rally hit a brick wall after Powell outright rejected the idea of introducing negative interest rates.

“Negative rates is something we are not considering, we have a good tool kit,” he said. “The tools we are using: forward guidance and asset purchases work and that is what we will be using.”

June gold futures last traded at $1,712.60 an ounce, up 0.36% on the day.

Powell also went back and forth on his outlook for the U.S. economy. He noted that the U.S. economy was in a good position at the start of the year and the virus is the cause of the unprecedented downturn.

He added that although the Federal Reserve and the federal government have taken historic measures to support the economy, more may be needed. He also said that the virus has created an environment of significant uncertainty.

“While the economic response has been massive, it might not be over,” he said.

Powell said that fiscal policies are needed during such uncertain times and that they are worth avoiding a significant long-term economic downturn.

Overall, Powell tried to strike an optimistic tone as he sees an economic recovery on the horizon. The question that remains is how long the recovery will take.

“It will take some time to get back to where we were but we can get there. The economy should substantially recovery once the virus is under control,” he said. “There is a growing sense that recovery will come more slowly but it will come.”

Author: Neils Christensen

Source: Kitco: Fed’s Powell sends gold price on rollercoaster ride, dismisses idea of negative rates

Ad Blocker Detected!

Advertisements fund this website. Please disable your adblocking software or whitelist our website.
Thank You!