Last November, I wrote an article on the LBMA’s gold price prediction of $1532 for 2019. The prediction came during their annual meeting in Boston last October, where attendees were polled and asked for their opinions. Participants reasoned that we could be at the top of the economic cycle, and investors seek to diversify out of equities and into safe haven assets.
Here is a chart of past LMBA predictions, and results.
The LBMA meetings saw a lot of focus on the negative economic factors affecting the world economy in 2018. It is easy to see why participants were then so bullish on the gold price for this year. However, analysts have missed their price predictions for the previous 4 years, so it came as a bit of a surprise to many market observers that the group would be so bullish. Gold was trading at around $1225 at the time of the prediction.
Right now gold is rising due to the trade tensions with China and their devaluation of the Yuan. Due to those trade tensions, Goldman analyst Sabine Schels sees the gold price rising to $1600 over the next 6 months.
“If growth worries persist, possibly due to a trade war escalation, gold could go even higher, driven by a larger ETF gold allocation from portfolio managers who still continue to under-own gold,” Goldman analysts including Sabine Schels said in a note Wednesday. “Gold ETFs have recently built momentum almost as strong as in 2016, and we believe that can be maintained in the short-term.”
Gold ETF’s are seeing a strong influx of gold investment in 2019, approaching levels last seen at the end of 2012. in fact, Goldman is very bullish on future ETF demand now that its initial price target has been breached.
Goldman said Wednesday it raised its 2019 outlook for ETF demand to 600 metric tons this year, from 300 tons, and boosted its six-month price forecast after the metal surpassed the bank’s previous target of $1,475.
The Bloomberg article notes several other worries that may add to portfolio managers piling into the yellow metal. These include $15 trillion in negative yielding bonds as reported in the Bloomberg Barclays Global Negative Yielding Debt Index.
In addition, analysts are finally seeing the same issues we documented last October in Germany’s auto market, spreading through the country’s industrial sector and resulting in the biggest annual decline of German production in a decade.
Analysts now appear to be considering a worldwide recession on the horizon. Bank of America is more bullish, talking a whopping $2000 gold target which would eclipse gold’s 2011 all-time high of $1921.
Last week, Bank of America Merrill Lynch analyst Michael Widmer said the metal could climb toward $2,000 in the next two years, as “the recent dovish tilt by central banks, accompanied by increases of negative yielding assets” provide a good backdrop that could sustain the rally. The metal reached a record $1,921.17 in the spot market in 2011.
Chinese Foreign Minister Wang Yi says Trump’s tariffs will not win the trade war, per the South China Morning Post.
“I am aware of [the announcement],” Wang told reporters on the sidelines of a meeting of Southeast Asian nations in Thailand. “Adding tariffs is definitely not a constructive way to solve the economic and trade frictions. It is not a correct way.”
Unfortunately, it appears the Trump administration is digging in deep in its face off with China. Secretary of State Mike Pompeo was recently quoted at the Southeast Asian nations forum in Thailand that the US is expecting a reversal of Chinese policy.
“For decades, China has taken advantage of trade. It’s time for that to stop,” he said.
“China’s problems are home-grown, but President Trump’s confrontation of China’s unfair trade practices has helped shine a light on them.
We’d like our trade matters resolved as quickly as possible. All we want is for China to compete on a level playing field with everyone else. This will benefit not only us, but you, and the global trading system, too.”
CNBC reports that farmers are standing firm with the US president, despite the damage their businesses have suffered this year. In fact, Trump polls higher within the farming community in the US than his average for all voters.
The Purdue Center for Commercial Agriculture’s latest producer survey, which was conducted last month and released Tuesday, showed a record-high 78% of farmers said they believe the trade war will ultimately benefit U.S. agriculture. That roughly matches Trump’s overall approval rating of 79% among farmers, according to a Farm Pulse survey conducted around the same time.
Given the two countries positions on trade, it appears gold price will stay elevated until tensions subside, likely for the rest of 2019. Further, the trend towards negative interest rate debt is a longer term bullish support for gold.
We recently wrote that the amount of negative interest rate debt would force currency into the marketplace to buy real valuable goods, which includes gold. This is exactly what we are seeing in the investment space – flight out of risk assets and into the gold sector.
If we see the recession spreading through world economies, then gold is likely to rise very sharply into 2020. Bank of America’s prediction of $2000 gold could become a reality in that scenario.