From Birch Gold Group
This week, Your News to Know rounds up the latest top stories involving precious metals and the overall economy. Stories include: Why strategists expect gold to form a new base around the $1,600 level, gold could reach $3,000 by 2025, and constant gold buying shows risk aversion in the stock market.
3 key reasons why the gold market is ready to trace back to $1,600
The first week of 2020 left market participants bedazzled as gold jumped past $1,600 within a few days over concerns that the conflict between the U.S. and Iran would escalate. The metal has retraced below the level as tensions appeared to simmer, yet it remains perched around last year’s high of $1,553, last seen in 2013.
Multiple strategists believe that gold’s incredible spike was far from a one-off, and that the factors are in place for the metal to return to $1,600 and stay above it for the rest of the year. While tensions in the Middle East look to have calmed down for now, not everyone is optimistic about the geopolitical outlook, and a bout of tensions that threatens to affect inflation or growth could lead to a prolonged period of price gains.
Yet even in the absence of such flare-ups, gold has plenty of drivers to suggest that the momentum from last year will pour over into 2020 and keep pushing the metal up. Negative real rates remain a global issue, and a possible weakening of the dollar could be another source of the metal’s strength, especially as gold has managed to post double-digit gains alongside a rising greenback. The fall in the dollar could start with disappointing U.S. economic data for the first quarter, which UBS commodity strategists Joni Teves and James Malcolm see as a likely scenario.
Colin Hamilton, managing director of commodities research at BMO Capital Markets, thinks that heightened physical demand from China could be another important price driver, as the past few months have shown noticeable improvements in the nation’s economy. Hamilton added a rebalancing of investor portfolios in favor of gold and consistent central bank buying as more reasons that point to another stellar year for the metal.
Gold could be starting a run that will bring the metal to $3,000 by 2025
In an interview with Yahoo Finance, Heritage Capital’s Paul Schatz spoke about what he sees as the start of a new era of price gains in the gold market that has the potential to double the metal’s price by 2025.
Schatz dismissed the idea that gold’s gains rely on major geopolitical flare-ups. While the U.S.-Iran conflict helped bring the metal above $1,600, gold is still up 4% less than two weeks into the New Year even after the tensions have seemingly calmed down. The yellow metal remains one of the world’s top performers due to a multitude of factors, and tensions with the Middle East have only been a small piece of the puzzle that allowed gold to close 2019 with a gain of nearly 20%.
Schatz took note of sentiment rapidly shifting in gold’s favor, as evidenced by the latest report by the latest Commodity Futures Trading Commission (CFTC), which showed that large speculators are betting big on the metal’s further gains.
Although gold often stands out as a hedge, Schatz said that investors shouldn’t get too attached to the view that gold is only being bought in a bid for safety, adding that the metal has seen plenty of demand despite the stock market’s solid performance. With this in mind, Schatz thinks we are seeing the beginning of a significant shift in the gold market that will push gold towards $3,000 by 2025.
Jim Cramer: The flock to gold highlights investor concerns over the stock market’s health
Days before gold breached the $1,600 level due to geopolitical tensions, CNBC’s Jim Cramer shared some insights on how the metal has been moving, both in response to the conflict and irrespective of it. As Cramer noted, the conflict with Iran has certainly helped gold breach a significant milestone, but demand for the metal is far from reliant on it.
Gold moved past $1,600 as Iran retaliated with a flurry of missile strikes, yet Cramer noted that massive gold buying started taking place even before the U.S. airstrike which killed top Iranian general Qasem Soleimani.
To Cramer, this signals that fear-driven demand is beginning to play a prominent role, especially when one considers that investors have been scrounging up Treasuries despite their abysmal showings. Speaking about gold’s technicals ahead of the strikes, Cramer said that investor appetite suggests that the metal looks ready to move to $1,700 or $1,800. Cramer added that gold’s move to this level could spell trouble for the thus-far well-performing stock market.
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