Several analysts in favour of gold are predicting a spike to come in the precious metal’s price. They base this prediction on several arguments but, as far as I’m concerned, their arguments won’t be enough to push gold up toward new heights. There are two other elements that need to come into play, and we’re starting to see them.
The comments above and below are excerpts from an article by Philippe Herlin (GoldBroker.com) which may have been enhanced – edited ([ ]) and abridged (…) – by munKNEE.com (Your Key to Making Money!) to provide you with a faster & easier read.
1. Negative rates: For a long time gold has been put down as “yielding no interest”. It may have been the case before but now that the yield on traditional investment vehicles (savings accounts, life insurance) is plunging toward zero, this argument is no more valid. The amount of sovereign borrowing at negative rates is increasing, thus the situation, likely, isn’t going to improve.
2. Stock markets at their highest: The levels reached just prior to the 2008 crisis have been surpassed, but there is still no recovery on the horizon. Obama is set to become the first president in the history of the United States under whom there has not been a single year of growth above 3%. Unemployment statistics are being artificially deflated by the number of discouraged people who have stopped looking for work…and let’s not talk about Europe and Japan, with their even weaker growth rates, and the “Chinese locomotive” has run out of steam.
3. Sales of physical gold are robust, to the point where refiners have difficulty catching up.
The above arguments are certainly convincing, and gold is already on the rise (from $1,000 an ounce in December 2015 to $1,300 today) but, as far as I’m concerned, this won’t be enough to push gold up toward new heights. There are two other elements that need to come into play, and we’re starting to see them:
1. Paper gold being put into question: A lot of investors worldwide use and trust this form of gold investment but the first negative signals are starting to show up. Take the case of Xetra-Gold, a branch of Deutsche Bank, where a client who had asked for physical gold in exchange for his paper gold was denied delivery. Paper gold holders might begin to understand that, if they all ask for conversion to “real” gold at the same time, they’ll be denied as well. That could be a welcome wakening call that pushes investors into physical gold.
2. The credibility of central banks: Most investors put their trust and faith in them…but Janet Yellen’s recurrent and contradictory statements about a hike in interest rates…are starting to erode the Fed’s credibility. Mario Draghi, with his program of sovereign and private asset buying, to the tune of 80 billion euro a month, is not getting any of the expected results, which weakens the ECB’s credibility as well. The Japanese, with their long-standing tradition of respect for authority, may keep their trust in the Bank of Japan a little longer, but they are facing more and more headwinds. Everyone is slowly becoming aware that with negative interest rates, central banks have painted themselves into a corner.
…As long as central banks remain credible, the price of gold will, at best, rise reasonably but when the Fed’s fallacious and contradictory statements lose grip on reality, the gold price will beat record after record. We might be getting closer and closer to that day but, in any case, some serious doubts are entering the minds of investors at large…
Follow the munKNEE – Your Key to Making Money! “Like” this article on Facebook; have your say on Twitter; register to receive our bi-weekly Market Intelligence Report newsletter (see sample here , sign up in top right hand corner)