Gold round-up: what our editors think about the yellow metal

Gold round-up: what our editors think about the yellow metal

“In the next financial crisis, central banks could engineer a gold price well in excess of $2,000 per ounce.”

So says David Stevenson, who joins a chorus of experts who believe the gold price could be about to go skywards.

How come?

Well, that’s why our editors have been in touch with you over the last few weeks…

You see, as well as weighing in on what interest rates, supply and demand fundamentals, and current geopolitical tensions mean for the yellow metal, they also predicted where the gold price could end up in the not-too-distant future, and what investors need to do to spot the next surge in price.

That’s why today, I thought it would be useful to bring you a round-up of their thoughts, so you’d be in the best position to take advantage should their expectations become a reality.

The key to understanding gold price

Let’s start with our growth expert, Sean Keyes, who thinks the key to understanding gold, and predicting future price hikes, lies in interest rates and inflation:

“When real rates are high gold goes down. Then real rates are low it goes up. It doesn’t really matter what’s causing real rates to change — it could be inflation or interest rates, or both together — what matters is the combination of the two.”

As Sean says here, in the past, the real interest rate has mirrored the gold price.

This, according to Sean, is the green light investors should look out for when trying to spot an incline in price.

David Stevenson agrees.

He kicked off the gold theme last week by deconstructing the popular view that interest rates could be harmful for bullion, and that inflation alone would improve value.

Both, according to David, are only partly right.

He reckons the true driver of the gold price is US real interest rate, saying:
Gold only comes under pressure when nominal rates rise faster than increases in the consumer price index.

Further, before the great financial crisis that began a decade ago, the real interest rate was also viewed as being roughly equivalent to the real economic growth rate.

Now the US economy has been expanding someway faster than 0.5% in recent years. For example, 2017 Q3 annualised real growth was 3%.

So you see, according to David, negative interest rates could be a key facilitator for a rise in gold price.

But why would negative interest rates be a problem now?

In David’s view, the post-financial crisis is “very long in the tooth,” and at this point, recession looks more likely than inflation.

An obvious catalyst

So, with stock prices and junk bonds appearing more vulnerable to significant falls, central banks are likely to rely on negative interest rates to patch-up the wounds.

And this could be excellent news for the gold price:

In the next financial crisis, central banks could engineer even larger negative numbers that could lead to a gold price well in excess of $2,000 per ounce.

That said, there’s another obvious catalyst that could send the gold price on a sharp upwards curve. Our associate Publisher, Glenn Fisher, sat down with GoldCore founder Mark O’Byrne last week to talk about it.

When asked what he believed could trigger a rise, Mark said for him, geopolitics and the supply demand fundamentals would play a key role:

“We are on the cusp of peak gold production…
Gold production in South Africa has already fallen over 75% and it is the canary in the gold mine so to speak.

All the data is suggesting this and leading people in the gold mining industry itself to say we are on the verge of a gold peak.”

According to Mark, “Uber-bull predictions of gold at over $5,000 per ounce are not beyond the realms of possibility…”

It’ll be interesting to see if Mark’s prediction plays out, especially if political tensions between the US and North Korea intensify, as regular contributor, and ex-financial threat analyst for the Pentagon, Jim Rickards, thinks they will…

Gold’s time to shine

You’ve probably heard of Jim Rickards before.

Famously bullish about gold, Jim recently stated in an article for The Daily Reckoning that:

The crisis in North Korea is not getting any better; it’s actually getting worse. Syria, Iran and the South China Sea are additional flashpoints. The headlines may fade in any given week, but geopolitical shocks will return when least expected and send gold soaring in a flight to safety.

Finally, the Fed will not raise rates in December, contrary to market expectations.

As market probabilities catch up with reality, the dollar will sink and gold will rally.”

You can read Jim’s full article here.

Should these events play out, investors may flock to gold as a safe-haven asset, and Jim’s $10,000 per ounce prediction could become a reality a lot sooner than anticipated.

So there you have it.

Our editors hit on some important points about the gold price last week, but the relationship between interest rates and inflation, and mounting geopolitical tensions – both of which are arguably occurring right now – proved to be their two main catalysts.

Whether you agree with them or not, I hope you’ve at least found our editors’ opinions over the last couple of weeks useful.

Perhaps they’ve confirmed your own suspicions that the gold price is going skywards, or maybe you’re still sat firmly on the fence.

Either way, we’d like to hear from you. You can send any feedback in to feedback@agora.co.uk and we’ll address your queries in future articles.

In the meantime, check out this potentially major new gold opportunity from our very own gold expert, Simon Popple.