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Gold Prices Touch Six Year Highs, Hold Above $1500 as Recession Warnings Spook Investors

Gold Prices Touch Six Year Highs, Hold Above $1500 as Recession Warnings Spook Investors

Release Date:  Saturday, August 17, 2019

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Gold May Rise to $2,300- BofA Merrill Lynch

Paul Ciana, Chief FICC Technical Strategist for Bank of America Merrill Lynch, explained that gold prices may reach a new record of $2,300 due to a crumbling economy.

"There is potential that the inversion curve could go as deep as 50 basis points... What does it really mean? It says the S&P 500 is on borrowed time... A potential of last gasp for the bulls... and then recession numbers kick in. Seven of the last seven inversions led to recession...

"Long, long term chart of gold going back to the 1970s... I think we're in a five wave structure... Break out above five year high. I think it could this could go as high as $2300 an ounce...." ("BofA Merrill's Ciana Says Yield Curve Could Invert 50 Basis Points, Gold May Hit $2,300," Yahoo! Finance, 8/14/19; emphasis added.)

Gold ended the week at $1,513.80/oz. Silver closed at $17.18/oz.

Gold Prices Touch Six Year Highs, Hold Above $1500 as Recession Warnings Spook Investors

Investors continue to push gold prices higher as more and more analysts warn of global slowdown and recession.

"Gold pulled back Friday from the latest in a string of more-than-six year highs, but remains on track for a weekly gain... Gold is up around 1% for the week and have rallied 5.9% so far in August as an intensifying U.S.-China trade war and growing worries over the global economy saw investors pile into haven assets. The related rally in Treasurys, sending down yields, further reinforced gains for gold, analysts said, by reducing the opportunity cost of holding the metal.

"Meanwhile, it isn't just retail and institutional investors boosting gold, said Christopher Louney, analyst at RBC Capital Markets. 'Central banks have been adding to their reserves for some time and the official sector at large has favored the metal, among other things, amid de-dollarization efforts,' he said, in a note...." ("Gold pulls back from more-than-6-year high," MarketWatch, 8/16/19; emphasis added.)

Analysts Forecast $2,000 Gold - MarketWatch

MarketWatch reported that several analysts see fundamentals driving told prices to $2,000.

"Gold has benefited from a spate of supportive factors over the past few months, and some bulls now see the precious metal making a climb to a record high of $2,000 an ounce. It will need more fuel to make that move, however, and the timeline for that rally remains uncertain.

"'There has been a strong undercurrent of demand for gold,' said Brien Lundin, editor of Gold Newsletter. 'Even as short term factors like the China trade dispute may come and go, longer-term investors are confident that the issues of monetary debasement and other geopolitical factors will continue to impact the market...'

"Stan Bharti, chief executive officer of private merchant bank Forbes & Manhattan, doesn't believe that gold is moving up because of short-term market fears. It's a move that's been a long time coming... in the 'last 8-10 years we've seen a bull market in stocks and lived in a low-interest-rate environment. That is dangerous for inflation.'

Given that backdrop, he expects gold prices to top $2,000 by the end of next year. That would be a record for Comex futures. More near term, Bharti sees gold jumping from $1,480 to $1,600 in the next quarter." ("Why gold's 'strong undercurrent' has some analysts eyeing $2,000 an ounce," MarketWatch, 8/15/19; emphasis added.)

TD Ameritrade Makes Case for $2,000 Gold

Stock broker TD Ameritrade believes that gold prices will rise much higher, possibly reaching $2,000.

"As Treasury yields continue to skydive, gold price levels could go through the roof as the scrambler for safe haven assets continues amid the latest market volatility as trade wars between the U.S. and China rage on. This could provide more gains for gold-focused exchanged-traded funds (ETFs) as analysts are predicting that the precious metal could shoot past the $2,000 per ounce price mark.

"We have a long position trade on. We are targeting $1,585,' said Daniel Ghali, commodities strategist at TD Ameritrade. 'We do think gold is on its way higher for the time being...Over the coming years as the likelihood of the unconventional policy becomes more of a reality, I could see a case for gold at $2,000....'

"'Negative yields are symptomatic for the search for safe assets. The reason they're trading at negative yields is because the demand for safe assets is bigger than the supply for them,' said Ghali. 'Gold stands to benefit quite a bit from that... the trade we've been recommending we have it as a three month time horizon. I would argue we are likely on the cusp of a multi-year bull market for gold....'" ("$2,000 Price Level a Possibility for Gold," ETF Trends, 8/15/19; emphasis added.)

Gold to Near $1,700 in 2020 - UBS

A UBS report forecasts gold prices to rise more than 10% to approach $1700 in 2020.

"Gold prices could rally more than 10% in the next 18 months, a new report says. The bullion bounce surge, which has taken off this month, will continue to be propelled by mounting investor worries, according to Swiss bank UBS. 'Gold is set to gain as recession, trade and geopolitical risks rise, and yields fall,' the report states.

"An ounce of the metal, which recently fetched $1,520 could rally more than 10% to $1,680 in 2020, the usually-conservative bank says...]It is becoming increasingly challenging for market participants to anticipate and plan for the future. In this environment of rising uncertainty and falling opportunity costs of holding gold, the yellow metal stands out as a clean way to take a strategic position both for institutional investors as well as the official sector [meaning central banks.]...

"It also looks like the gold fever will last. 'we think wider exposure to gold is still not overly extended and looks particularly muted compared to investor allocations to other asset classes,' the report states...." ("UBS: Gold To Reach Almost $1,700 Next Year," Forbes, 8/15/19; emphasis added.)

Deutsche Bank Raises Gold Targets up to $1,700

Deutsche Bank's new research report increased the bank's price targets for gold see macro scenarios where gold could increase as high as $1700.

"Long-time market investors have always tended to chuckle at the "gold-bugs" as they tend to stay positive on the precious metals all the time. Not many are laughing now, as the spot price has broken out to six-year highs, and investors late to the party have been bidding up the top companies in the sector to 52-week highs. One thing is for sure: the gold trade is on, and it makes sense to add some shares now.

"In a new Deutsche Bank research report, the firm's precious metals team raises its price target for gold... The report noted these three top reasons for increasing the targets: 'We have increased our gold and silver price forecasts for the next six quarters to reach a level of $1,575/ounce based on our updated view of the macro, including what we see as the primary drivers of gold: real interest rates, the equity risk premium, the US dollar, and central bank purchases; We have shown macro scenarios that could result in gold going above $1,700/ounce....'"  ("Deutsche Bank Raises Gold Price Targets: 3 Top Stocks to Buy Now," 24/7 Wall St., 8/16/29; emphasis added.)

Very Limited Window to Buy Gold Before Prices Rise to New Record Highs - Egon von Greyerz

Egon von Greyerz, Founder and Managing Partner of Matterhorn Asset Management, wrote that investors have limited time to acquire gold at current low prices before demand will send prices significantly higher.

"Non-government physical gold investment is approximately 0.5% of global financial assets which are $260 trillion. So 0.5% is $1.3 trillion which is 28,000 tonnes of gold. Total annual mine production of gold is 3,000 tonnes. So if investment gold ownership doubled to 1%, it would require 9 years of gold production at current prices...

"So it is clear that only a minuscule reallocation of global assets into physical gold would put enormous upward pressure on the gold price. Thus, it would be impossible for institutions to make any meaningful investment into gold at current levels... This means that the coming gold demand can only be met at much higher gold prices and smaller quantities...

Anyone intending to buy gold in big quantities has a very small window currently when that is still possible. Very few institutions will realize this until it is too late. Also buyers of smaller quantities of gold will have problems to get hold of gold at reasonable prices or margin as the price of gold moves up rapidly.

"What I say about gold above is even more relevant for silver. Silver is a very small market that has been suppressed for years. It is now on the verge of breaking out and once it does, the price will move very rapidly and it will become extremely difficult to get hold of physical silver. I emphasize physical metals because anyone who buys paper metals is unlikely to ever get delivery or be paid out...

"There is no doubt that gold in dollars will soon make new highs past the $1,920 high in 2011. We must remember that gold has already made new highs in dozens of currencies, including Australian and Canadian dollars, British pounds, Swedish and Norwegian Kroner and many more. The break of the Maginot Line at $1,350 was the last obstacle for gold. The old high at $1,920 will be blown away easily... The risk is here now and it can start at any time. There is no time to think or procrastinate. If you act now, you have a chance to protect your assets and not be one who loses assets accumulated over decades in a flash. The very few who own gold or silver as protection against the coming catastrophe will definitely sleep better." ("The Gold Bull Is Alive And Kicking," Gold-Eagle, 8/15/19; original emphasis.)

Buy Gold Now Says Société Générale

Alain Bokobza, Head of Global Asset Allocation and a member of Societe Generale's Global Research Executive Committee, urged investors to acquire gold.

"Société Générale's Alain Bokobza reiterated a bullish view on gold in a note on Tuesday, writing that three major factors could sustain a "gold fever." ...:

"• The current stage of the economic cycle. Société Générale's asset-mapping framework is currently signaling a higher allocation into gold, according to Bokobza...

"Bokobza suggests a gold allocation of about 13%-14% for a balanced portfolio during late-cycle and recession periods, 'with strong signals on the U.S. yield curve inversion and post-inversion phases.'

• Safe-haven assets are scarce. Bokobza believes the U.S. is nearing an economic slowdown or an outright recession, which would make portfolio protection a prudent move...

";Yields could get even more negative, you might argue, but the rationale and potential crowdedness of this 'easy' trade should also be considered," Bokobza added. That could help explain the performance of gold in recent months, he noted, adding that sentiment toward gold is turning around following 'years of doubt about how gold may have lost its glitter.'

• Central bank purchases. Central banks, which are seeking diversification away from the dollar, are building gold reserves that could 'sustain steady growth for a prolonged period,' Bokobza noted... Bokobza's team at Société Générale advises investors to play gold's surge with gold-linked assets, Asian currencies, and gold miners.... " ("Buy More Gold Now, Société Générale Says," Barron's, 8/7/19; emphasis added.)

Recession Could Strike in as Little As Three Months - Henrich

Sven Henrich, founder and lead market strategist at Northman Trader, penned a commentary that a recession could hit the United States in the next three months.

"The collapse in global bond yields has been a theme since October of last year, with 10-year US Treasury bonds dropping to 1.6% from their October 2018 high of 3.23%. Now that the two-year/10-year Treasury yield curve has inverted, the recession alarm bells are ringing. Why? Because every single recession in the past 45 years has seen a yield curve inversion preceding it.

"History suggests that on average a recession begins 22 months after a yield curve inversion. It's not until about 18 months after an inversion that the stock market turns negative.

Yet Bank of America Merrill Lynch numbers indicate that we have less time. For the 10 yield curve inversions since 1956, the S&P 500 peaked within approximately three months of the inversion six times. Following the other four, the S&P 500 took 11 to 22 months to peak. Twenty-two months of growth vs. three months? That's quite a big gap...

"Growth is slowing. Long gone are the promises of 4% GDP growth. In fact, growth is looking to drop below 2% in lieu of a trade deal. The only thing that has been growing are deficits, which are on pace to hit $1 trillion this year already. All of these are signs that the risk of a global recession is a clear and present danger...

"But global economic data suggests a global recession may come a lot sooner than anyone anticipated. And this reveals an uncomfortable truth: We've never faced a recession with so much debt and so little Fed ammunition available and with negative rates still in effect in many countries. There's no playbook for this. Historic data may be of little predictive use. A sudden end to the trade deal may be imperative - without it we don't have much time before the next recession begins." ("A global recession may be coming a lot sooner than anyone thought," CNN, 8/16/19.)