Gold Prices Update: Gold’s Safe Money Appeal to Thrust the Metal Into a Bull Market

Gold’s Safe Money Appeal to Thrust the Metal Into a Bull MarketThis week, Your News to Know rounds up the latest news involving gold and the overall economy. Stories include: Gold looks like safe money amid rising inflation, gold’s technical picture is looking better by the minute, and Brexit fears have triggered an Irish gold rush.

Gold looks like safe money amid rising inflation

With numerous analysts stating that U.S. stocks have turned bearish, the gold market is looking to snatch the bull title away. But, as Forbes’ Rainer Michael Preiss states, there is much more to gold’s bullish turnaround than stock market worries.

While fading equities have certainly done their part in reigniting gold demand, other sources could bring even more favor to the metal. The recent government shutdown that earned the title of longest shutdown in U.S. history disrupted the lives of millions of Americans and caused enough panic to give attention to bullion.

Preiss, however, sees a spike in inflation as the possible deciding factor to thrust gold into a bull market. Some speculate that the U.S.-China trade war could persist for years, potentially heralding a significant rise in consumer prices. This will form a perfect storm for the metal as central banks around the world reduce liquidity by moving towards quantitative tightening. As Preiss explains, fiat money is looking increasingly questionable.

“Gold is an economic constant. It will never become worthless, nor will it decline due to inflation over time like a fiat currency. Gold carries no risk of default, nor can it go bankrupt,” he explains.

Preiss’ last point is particularly interesting amid rising global debt levels. Fed Chair Jerome Powell recently acknowledged that U.S. debt is a major issue, one that is exacerbated by China’s status as a primary creditor. Powell’s concerns come as analysts lower their rate hike expectations for the year to two hikes, down from a previously-forecasted three.

The Fed’s dovish shift might come too late, as many have pointed out that nearly every U.S. tightening cycle in the past has triggered a recession. The reduction of liquidity by central banks around the world strengthens fears that another global crisis is around the corner and gives more weight to gold’s bullish prospects in 2019 and beyond.

Technician: Gold is forming a “golden cross”, could bounce even higher

Although the trading pattern known as the “golden cross” isn’t limited to a particular asset, it just so happens that gold could be the beneficiary of this highly bullish signal. The phenomenon occurs when the 50-day moving average crosses its 200-day moving average, and Cornerstone Macro technician Carter Worth sees this happening in the gold market.

The metal is up 10% since August, but Worth says that the technical picture suggests gold could go much higher. Talking to CNBC, Worth explained that gold’s long-term chart shows built-up pressure that is likely to be resolved to the upside.

To back his forecast, Worth points out that gold is beating the overall commodities market, something the technician sees as a testament of strength. The feat is especially notable after gold outperformed the long-running bull market in stocks in December.

Like other analysts, Worth sees the $1,300 level as a key threshold for gold’s move up. Once this resistance is breached, Worth thinks that a jump to $1,350 an ounce is imminent.

Brexit fears have triggered an Irish gold rush

Britain’s vote to exit the European Union gave gold plenty of short-term momentum in 2016 as investors grew worried over the potential ramifications. Fears appeared to have simmered down since, as the British Parliament began a lengthy process of brokering a deal with Brussels that will be beneficial to both parties.

But with such a deal now looking unlikely to materialize, Kitco reports Brexit-related fears are once again gripping citizens of the United Kingdom and the global market as a whole. After the Parliament overwhelmingly rejected Prime Minister Theresa May’s proposition last week, the prospect of a no-deal Brexit and a subsequent devaluation of the pound sterling appears increasingly probable.

According to Ireland’s Merrion Vaults, Irish citizens aren’t waiting for the March 29 deadline as they rush to exchange their fiat currency for bullion.

“Customers are taking money – physical money – out of the bank and they’re buying gold bullion with us to store it, and it’s a hedge,” said Seamus Fahy, co-founder of the Dublin-based bullion dealership and storage facility.

Merrion Vaults has seen a 70% increase in clients from Northern Ireland in 2018, attesting to the depth of concerns surrounding May’s ability to achieve a smooth transition. The creation of a hard border with Ireland could be one of the consequences of a hard exit from the EU.

For many, a more severe consequence would be the major sell-off of the sterling that would soon follow, translating to an immediate devaluation. As Fahy explained, flights to the safety of bullion are common whenever a currency’s value is placed into question, and the company’s recent sales figures of gold bars and coins are a prime example of this.

Gold Prices Could Soar in 2019: Institutional Investors Become Bullish

Sentiment Turning, Gold Prices Could Register Solid Gains in 2019

Those with a lot of money are turning bullish on gold. This could have very positive impacts on gold prices in 2019 and beyond.

You see, in recent years, institutional money didn’t really care about the yellow precious metal. Across the board, the sentiment toward gold was very similar: it’s a useless asset that won’t add much value to a portfolio.

As a result, institutional investors never bought in, and we saw the price of gold remain stagnant. Keep in mind that institutional investors have a lot of money. They can move markets up or down.

Now it seems like sentiment is turning. At the very least, the tone is changing.

Here at Lombardi Letter, we have presented a lot of evidence that big banks have been signaling that gold is worth a look.

We have seen major banks like Bank of America Corp (NYSE:BAC), Goldman Sachs Group Inc (NYSE:GS), and Bank of Montreal (NYSE:BMO) say that gold prices could move higher in 2019 and beyond.

Now, institutional investors are also favoring gold—even talking about allocating significant amounts of capital toward it. This is the first time in several years that we have been hearing something like this.

Russ Koesterich, portfolio manager at BlackRock Global Allocation Fund, Inc, said, “We’re constructive on gold.” He added, “We think it’s going to be a valuable portfolio hedge. We’re multi-asset investors: we think about its effect on the entire portfolio, and what we see value in right now is gold’s value as a diversifier.”

Mind you, BlackRock Global Allocation Fund has $60.0 billion under management. If we assume that the fund allocates just 10% of its portfolio to gold, that’s $600.0 million.

This sum may not sound much, but don’t forget that the gold market is fairly small, relative to the stock market and the bond market. That amount of money could make an impact on the gold market.

What’s Next for Gold Prices in 2019?

Dear reader, the case for higher gold prices is getting stronger by the day.

The decline in the price of gold between 2013 and 2015 was nothing but a blessing in disguise for those who never bought the yellow precious metal.

In the midst of the sell-off, the fundamentals of the gold market changed too.

Mark my words: if institutional money comes in to buy gold, we could see a shortage-like scenario in no time. Over the past few years, demand has been solid from central banks and consumers, while the supply side has faced a lot of problems.

I will end with this: don’t be shocked if 2019 becomes a stellar year for gold.

On the upside, $1,375 is the gold price level to watch. If that level is taken out (it has acted as a resistance level for several years), we could see fireworks, to say the least. The next resistance level for gold prices isn’t until $1,550.

In the meantime, gold miners shouldn’t be ignored. If the price of gold makes a run for $1,375 (or even $1,550) in 2019, certain gold mining stocks could double in value (if not more).

Gold Bugs Look Out, the Federal Reserve Just Made a Case For Higher Gold Prices

Gold Prices Could Be Setting Up to Soar, All Thanks to the Federal Reserve

The Federal Reserve has just made a very strong case for owning gold. It wouldn’t be shocking to see gold prices surging in the coming months.

You see, over the past few years, the Fed has been adamant that it will continue to raise rates, which put pressure on gold. The narrative was that gold is a useless asset in times of rising interest rates. Investors followed through and ditched the precious metal.

But now, the Federal Reserve’s rhetoric is changing. According to its most recent monetary statement, “In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.” Put simply, the Fed is pretty much saying it’s slightly concerned about what’s happening, and may not be raising rates going forward.

The Federal Reserve was very aggressive in raising rates and made it very clear that it would not stop no matter what. Recall how President Donald Trump was telling the Fed that it’s doing a bad job and shouldn’t raise rates, and the board didn’t listen?

This is very big news—and very bullish for gold bugs.

Here’s the kicker: as the Federal Reserve has hinted it won’t raise rates, there’s already a lot of talk about how rate cuts could be on the table down the road.

However, that would be getting ahead of ourselves.

What Should Gold Bugs Know Going Forward?

Don’t be shocked if those who ditched gold between 2013 and 2015 suddenly rethink their decision and start buying. This could cause gold prices to move higher.

However, if you are looking for leveraged returns, it would be wise to pay close attention to gold mining stocks. They tend to outperform performance on gold bullion by a large margin.

Over the past few years, gold mining stocks have been heavily scrutinized by investors. Should we see a bull run in gold prices, it wouldn’t be surprising to see them do much better than they did in the previous bull market.

How High Could Gold Prices Go?

Over the past few years, we have seen a formation of a technical analysis pattern called an ascending triangle on the gold price chart (above). This pattern develops when there’s an uptrend but the price finds it difficult to pass beyond a resistance level.

For gold, this resistance level has been around $1,355 to $1,375.

Note that price starts to escalate once the resistance level is broken.

As it stands, we are seeing bullish momentum. Indicators like the moving average convergence/divergence (MACD), plotted on the chart above, say buyers are present, purchasing, and could take gold prices much higher—that is, assuming the price breaks above resistance.

To predict where gold prices could go next, technical analysts usually measure the widest part of the triangle and add its length above the breakout level.

In this case, the widest part of the triangle is the price action between December 2015 and July 2016 at about $300.00. Adding that to the breakout level of $1,375, we could see gold prices as high as $1,675.

Time will obviously tell. However, I remain bullish and believe it would be foolish not to look at gold as the Fed mulls over rate increases.