3 Reasons Why Gold Prices Have Bright Outlook
3 Reasons Why Gold Prices Have Bright Outlook
- The “Brexit”
- The Federal Reserve’s decision on interest rates
- German and Japanese negative interest rates
Right now, the potential Brexit and the Federal Reserve’s interest rate decision (see next section below) are two of the key drivers for gold’s rising price. A third, more long-term driver continues to be the negative yield on government bonds. A significant number of governments’ debt is selling at negative yield. The Japanese government bonds for with two year, five year, and ten year maturities all have negative yields. Two and five year German bonds are likewise yielding negative returns, and the German ten-year bond is close to a negative yield as well. This means that investors who hold these bonds to maturity are definitely going to lose money. Germany and Japan are two of the most significant economies experiencing this lack of growth given their size, but they are certainly not the only ones.
What this means for investors: As they continue to lose money, investors are going to start forgoing bonds in favor of assets like gold that store value. It’s also worthwhile to remember that the gold market is relatively small when contrasted to the bond or stock markets, so a relatively small amount of money diverting to precious metals investing could cause prices to soar.
Gold’s Mid-Week Price Jump Following Fed Announcement
The biggest news of the week for the economy was Wednesday’s Federal Reserve announcement that the June interest rates hike proposed a few weeks ago would not go ahead after all. Recent jobs data from the Bureau of Labor showed alarming figures about lack employment growth and called into question whether the economy was strong enough for a rates hike. Gold and silver were both making gains earlier in the week and got an additional hefty boost following Fed chair Janet Yellen’s announcement with gold hitting 6 week highs and coming just short of $1,300. Stocks took a hit.
What this means for investors: This has two implications for investors. The first is that the economy is showing signs that it is not as strong as the optimistic projections of we have been hearing from the Fed. When the economy is suffering any kind of sluggishness, investors flock to gold as a safe haven against crisis. The second implication is that this is a prime buying opportunity for both silver and gold before prices surge higher.
Experts Say “Gold Will Soar” if Britain Votes Leave on EU Referendum
The possible “Brexit” – which will be voted on next week – was also an important discussion topic in the Fed meeting. The staunchest “Remain” contingent in Britain has said a “Leave” vote would be “economic suicide” for Britain. Whether this is an exaggeration or not remains to be seen, but it is certain that the euro and pound sterling would suffer a hard blow regardless and the global economy would suffer massive amounts of uncertainty and volatility. European investors have been heavily buying gold in the weeks leading to the vote.
HSBC Bank estimated gold would rally 10% to around $1400 if the leave vote wins out. In the past week, polls have tipped from “remain” to “leave” with some at as much as a 40/47 split.
What this means for investors: If the Brexit happens, investors here and in Europe who did not buy gold will be kicking themselves. All 28 countries in the EU bloc will find their economies reeling as they negotiate what the exit of one of their most influential partners means for trade deals. If there Brexit does not happen, there is still enough volatility in the Eurozone and global economy at large that gold would likely not be adversely affected by the “Remain” vote. Although the Brexit has taken the spotlight for now, Greece’s recent financial collapse and debt default is also still weighing heavily on the Eurozone and will certainly continue to wreak havoc on the markets.
$10,000 Gold – Why One Commodities Expert Says It’s Possible
An impending global economic meltdown will drive gold’s price to historic highs, according to one of Wall Street’s most closely followed commodities traders, Jim Rickards. Rickards was on CNBC saying that gold is on the verge of a rally unlike it’s ever experienced before. The author of numerous New York Times bestsellers, he cautioned that the world is on the brink of another, ten-year cyclical financial collapse. He advised that gold is the ultimate safe haven in times of volatility such as will come in the next couple years.
What this means for investors: Rickards estimation tracks a cycle that’s been occurring for decades where every ten years the global economy experiences a massive disruption. He thinks 2018 is going to be the next such disruption and will likely be triggered by the U.S. government itself. Central banks will need a bail out as other banking institutions did in 2008, and the International Monetary Fund (IMF) is the only global source left with the funds necessary to do so. War and conflict in the Middle East or South China Sea would exacerbate this meltdown. As the money supply is disrupted, investors will flock to risk-off investment in gold and silver as the only safe protection of their wealth.
Here are some articles from the web discussing the topics in this week’s post:
3 Reasons Why Gold Prices Have a Bright Outlook
Read Here
Gold’s Mid-Week Price Jump Following Fed Announcement
Read Here
Experts Say “Gold Will Soar” if Britain Votes Leave on EU Referendum
Read Here
$10,000 Gold – Why One Commodities Expert Says It’s Possible
Read Here
As always, I encourage you to speak with your broker at RME for more market updates. Expert brokers are available Monday-Friday from 9 AM- 5 PM or by special appointment after hours. Call today at 602-955-6500 or toll-free at 877-354-4040.
