For the first three quarters of this year, gold peaked with an almost 25% gain more than double the rise of the S&P 500 at the time. Gold was on pace for its best year in a decade. Probably still is. But just how good it is really going to be is, as usual, a major area of debate, with Goldman sticking to its $1600 price range, but others eyeing up to $3,000 an ounce.
Back in August, Goldman Sachs Group analysts said that gold's rally above $1,500 was just the beginning and that prices would climb to $1,600 an ounce over the next six months as investors seek havens.
And they’re still sticking to that thesis. In note last Friday, Goldman Sachs analyst Sabine Schels wrote that investors should diversify their long-term bond holdings with gold, citing “fear-driven demand” for the precious metal.
“Gold cannot fully replace government bonds in a portfolio, but the case to reallocate a portion of normal bond exposure to gold is as strong as ever…We still see upside in gold as late cycle concerns and heightened political uncertainty will likely support investment demand" for bullion as a defensive asset.”
However, some investors are even more optimistic about the gold prices and believe that Goldman Sachs is shooting way too low here.
Paul Schatz, Heritage Capital president, told Yahoo Finance’s “On The Move” that he thinks Goldman’s forecast is way off.
“I think gold's going to $2,500, $3,000 an ounce in the 2020s because the climate—the landscape for gold is so hugely supportive.”
But no sooner did Schatz speak than Trump got on Twitter, again.
On Thursday, gold turned lower after Trump that a trade deal with China was near, rallying the stock market and dulling demand for gold.
“Getting VERY close to a BIG DEAL with China. They want it, and so do we!” President Trump wrote.
The market, as always, is hypersensitive to Trump tweets, and all it takes is a vague sentence to get things rolling again. But it’s always temporary, and the U.S.-China trade war is the elephant in the room for gold prices.
Gold has been the biggest beneficiary of this trade war, and its most recent bump was Trump’s statement that a trade deal with China may not happen until after 2020 presidential elections.
But don’t get too hung up on tweets when it comes to gold--or the trade war.
Tweets come and go, but the trade war remains, and the next big day for gold--one way or another--will be December 15th, the deadline for Trump to decide whether to impose more tariffs on nearly $160 billion in Chinese consumer goods.
The tariffs were supposed to come into effect in September, but the Trump administration decided to delay it due to the holidays.
The outcome of the UK’s general election, held on Thursday, December 12th, will also boost or place downward pressure on gold. The result will either pave the way for Brexit under Prime Minister Boris Johnson or propel the country towards another referendum on leaving the EU.
While major opinion polls suggest Johnson will win, any surprises could lend further support to gold prices.
As for next year and optimism on gold prices, there’s also the matter of the 2020 election. And the best thing gold has going for it, and why that $3,000 target might just be realistic is investor terror at what’s to come.
BTIG strategist Julian Emauel, cited by CNBC, says that investors are hedging an entire year in advance that something negative is going to happen around election time, one way or another. And it’s not bipartisan hedging, necessarily.
Whether it’s another year of Trump and trade wars, or someone like Elizabeth Warren and her massive healthcare and education plans, investors see something apocalyptic. That’s why they are, for the first time, hedging on an election a year ahead of time, and putting a premium on S&P 500 puts versus calls.
And all of what Emanuel calls “unprecedented apprehension” can only be great for gold, the only true safe haven out there.
By Anes Alic for SafeHaven.com
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