The Future Of Gold Prices
Updated in March 2023
Hasten slowly, and ye shall soon arrive. Milarepa
In August, we boldly declared in an article entitled “The Death of the Gold Bull” that it wasn’t the opportune moment to purchase Gold. During that time, numerous analysts were predicting the nadir, with many stating that the future of gold prices was excellent. Many boldly proclaimed that they would skyrocket. Nonetheless, we asserted with conviction that Gold would probably plummet further before bottoming out. And now, as we fast-forward, our prophetic vision has come to fruition.
So, let’s examine what the fundamentals reveal.
The World Gold Council’s most recent report shows that the demand for Gold is skyrocketing. The worldwide demand for Gold surged by a colossal 33%. Even Americans have joined the fray; U.S. retail demand for Gold skyrocketed to 32.7 metric tons, a 200% increase compared to last year.
The report also revealed that Gold demand in China surged by 70% to 52 metric tons, while Europeans also seem to be stocking up on Gold. Demand increased by 35% to 61 metric tons.
So, what’s the catch? Why aren’t Gold prices skyrocketing?
Fundamentally, the dollar should have crashed a long time ago since the U.S. Fed has been churning out more money in the past ten years than in the previous century. Fundamentals would have had you investing in energy and oil stocks at just the time when they plummeted. Until oil plummeted, all the experts were hollering about the dearth of oil and the burgeoning demand in Asia. The general market in Asia continues to ascend, but those same individuals have now switched tunes. Instead of warning about an oil shortage, they preach the oversupply gospel. How quickly they change sides!
If the future of Gold prices is bright: What gives?
US Dollar Index
In a word, the US dollar. The dollar has been experiencing a massive bull run, something we predicted ahead of time. In fact, we made the bold proclamation nearly two years ago that the USD would trade on par with the Euro, and this has now come to fruition.
The dollar is currently trading in a highly overbought range and is poised to reach a multi-year peak that could last up to 11 years. As such, discerning investors should start acquiring positions in precious metals like Gold, Silver, and Palladium right away. Time waits for no one, so it’s best to take action today. Remember, today is the tomorrow that you promised yourself you would change yesterday.
We estimate that the minimum upside targets for Gold over the next 15 to 24 months will fall within the 2400 to 2700 range, with the possibility of overshooting to the 3000 range. There are several good stocks to consider in this sector; two that come to mind are RGLD and DRD.
Central Bankers are buying Gold hand over fist.
Central bankers are keeping themselves occupied with the accumulation of this precious metal. The principal purchasers include the nations of Russia and China. These financial authorities may have access to information not readily available to the public. Whatever the rationale behind it may be, these central bankers seem to be unreservedly amassing significant amounts of gold.
Two years after hitting its lowest point in a decade, the demand for gold by central banks has made a robust comeback. Last year, there was a year-on-year increase in demand from this sector, with net purchases totalling 1,136t.
This marked a significant milestone in central bank buying as it was not only the thirteenth consecutive year of net purchases but also the highest level of annual demand on record back to 1950. The last quarter of the year saw central bank net purchases of 417t, lifting H2 total buying to 862t. The data for the year’s final quarter was a combination of reported purchases and a substantial estimate for unreported buying.1 These estimates may be revised if more information about this unreported activity becomes available.
Central Bankers love the Yellow Stuff.
Gold has been a favourite amongst central banks since they became net purchasers annually in 2010. The most recent annual central bank gold survey highlights two critical drivers of central banks’ decisions to hold gold: its performance during times of crisis and its role as a long-term store of value. It’s hardly surprising then that central banks opted to continue adding gold to their coffers and at an accelerated pace in a year scarred by geopolitical uncertainty and rampant inflation.
Moreover, emerging market central banks accounted for most of last year’s reported demand.
Two crucial factors can explain central bankers’ chase for gold. Firstly, gold has proven to be a reliable asset during times of crisis, making it an essential hedge against economic uncertainties. Secondly, gold serves as a long-term store of value, providing central banks with a safe haven for their reserves. These factors have made gold an attractive option for central banks, leading them to continue buying gold at an accelerated pace, particularly in emerging markets. Recent purchases by the People’s Bank of China and the Central Bank of Turkey have cemented gold’s position as a preferred asset amongst central bankers. Gold.org
The Future Of Gold Prices Should be bright.
The lacklustre action in the Gold markets may seem surprising despite positive fundamentals, but it is essential to remember logical factors do not solely drive that market behaviour. Emotions and crowd psychology are crucial in market movements; technical indicators can help identify these emotional changes. The timing of market peaks and bottoms is challenging to predict, but paying attention to the crowd’s behaviour can be helpful. While some people may be bullish on Gold, the crowd has not fully embraced it. When the crowd does jump on board, the situation could become explosive.
Now is the time to start building long-term positions in the precious metals sector.
A good idea plus capable men cannot fail; it is better than money in the bank.
John Berry
Articles validating the hypothesis in this article
These articles provide a range of perspectives on the relationship between gold and the dollar and how gold tends to perform when the dollar is at or near a long-term peak.
- “Why Gold Could Be Heading Higher as the Dollar Peaks” by Dan Weil, published in TheStreet in September 2019. The article discusses how gold tends to rise when the dollar is at or near a long-term peak and cites historical examples to support this view. Link: https://www.thestreet.com/markets/gold/why-gold-could-be-heading-higher-as-the-dollar-peaks-15112006
- “Gold Prices Climb as Dollar Reaches 13-Year High” by Rachel Koning Beals, published in MarketWatch in November 2016. The article discusses how gold tends to perform well when the dollar is at an extreme and cites a study by Ned Davis Research that found that gold outperformed other assets when the dollar was at a long-term peak. Link: https://www.marketwatch.com/story/gold-prices-climb-as-dollar-reaches-13-year-high-2016-11-24
- “The Relationship Between Gold and the US Dollar” by Joe Perry, published in GoldSilver in August 2020. The article discusses how gold and the dollar tend to have an inverse relationship and how gold tends to rise when the dollar is weak or at a long-term peak. The article cites historical examples and provides charts to support its arguments. Link: https://goldsilver.com/blog/the-relationship-between-gold-and-the-us-dollar/
- “Gold Prices Could Surge as the US Dollar Peaks” by Frank Holmes, published in Forbes in October 2019. The article discusses how gold has historically performed well when the dollar is at a long-term peak and cites a study by the World Gold Council that found that gold tends to have a negative correlation with the dollar over the long term. Link: https://www.forbes.com/sites/greatspeculations/2019/10/21/gold-prices-could-surge-as-the-us-dollar-peaks/?sh=1508d2f1a9c9
Research
Research shows buying gold when the dollar is about to put in a long-term top could be profitable. Campbell Harvey, a finance professor at Duke University, analyzed the relationship between gold and the US dollar from 1975 to 2012. His study found that gold tends to perform well when the dollar is in a long-term downtrend and underperforms when the dollar is in a long-term uptrend.
Harvey’s research suggests that buying gold when the dollar is about to put in a long-term top could capture the upswing in gold prices that often occurs as the dollar begins to decline. While past performance does not guarantee future results, Harvey’s research provides evidence to support buying gold as a strategy for diversification and inflation protection. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1968570
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