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Will Gold Reach For The Stars, Or Just Hit The Tree Tops?

By Investing.com (Barani Krishnan/Investing.com)CommoditiesSep 13, 2019 03:34AM ET
www.investing.com/analysis/will-gold-reach-for-the-stars-or-just-hit-the-tree-tops-200464264
Will Gold Reach For The Stars, Or Just Hit The Tree Tops?
By Investing.com (Barani Krishnan/Investing.com)   |  Sep 13, 2019 03:34AM ET
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The ECB has finally cut its deposit rate to a record low of minus 0.5%. And the Fed gets its chance to cut rates next, along with a host of other central banks, including Japan’s. The question is, what will gold do?

Compared to its scintillating run between May and August, gold’s performance in recent days has been nothing short of anemic.

Even after the European Central Bank’s return to quantitative easing on Thursday, the yellow metal barely settled higher. The only consolation is that it got a huge pop early in the day that vanished on profit-taking before the close.

How High Will Gold Go; How Long Will It Last At Those Peaks?

All this makes gold’s next breakout hard to predict—from how high it will go, to how long the run-up will last.

So, to reprise the question: What will gold longs do if the Federal Reserve cuts rates on Sept 18, as widely expected, even if for a nominal 25 basis points?

And what if that action is followed through by a rash of easing by the central banks of Japan, Taiwan and Indonesia, all of which have policy decisions on Sept 19, just a day after the Fed’s?

Will gold longs reach for the stars then? Or will they be content to just land on the tree tops?

Two Schools Of Thought

There are two schools of thought on the direction for the world’s favorite safe haven.

One is that the gold rally has reached exhaustion point, meaning there will be fewer of the kind of outsize gains seen over the past four months. Even if there are, those advances are likely to be returned quickly.

The other is that longs in the precious metal are virtually unstoppable, and could, if the stars align, rewrite the 2011 record high of above $1,900 per ounce.

Gold Weekly Chart - Powered by TradingView
Gold Weekly Chart - Powered by TradingView

RBC Calls For $1,500 Gold

Canadian banking group RBC belongs to the first school of thought, forecasting on Thursday a modest assumption of $1,500 for the remainder of 2019 and 2020. It’s previous call was $1,350.

While the Fed’s expected action will be the underlying driver for $1,500 gold, RBC said the precious metal

“at this point … appears to be pricing in a no-successful completion for a U.S.-China free trade agreement before year-end”.

It added:

“We expect a seasonal rally in the gold price in the December - January period.”

Even so, RBC had a more low-key projection for 2021 and above, forecasting an average price of $1,450, versus earlier estimates of $1,300. For the long-term, it put down a price of $1,400.

RBC did not explain its restrained outlook.

After hitting 6-year peaks of $1,565 in August, U.S. gold futures on Comex are holding just above $1,500 now, accruing a gain of 17% on the year versus a previous high of 20%. Spot gold, which reflects trades in bullion, is hovering just under $1,500, with an annual gain of 15%.

Disappointment In Fed May Prevent Outperformance, Says TD Group

TD Securities, another Canadian financial institution, also expects the yellow metal to maintain its bullish tilt, although gold longs’ disappointment with Fed cuts may prevent an outperformance.

The group said in a note:

The ECB’s “notion of QE infinity, until inflation ‘converges’ to 2%, represents a dovish tilt … and will continue to see rates moving lower amid reach for yield, ultimately supporting gold.”

But it also said that President Donald Trump’s relentless push for the Fed to outdo its peers in cutting rates was unlikely to see corresponding action. Earlier this week, Trump called officials at the U.S. central bank “boneheads” for their tame rate cuts and praised the ECB on Thursday for “acting quickly” while the Fed “sits, sits and sits”.

Overall, TD Securities said that underlying economic weakness, dovish central bank tilt, and shortage of safe haven assets as the negative yielding debt pile surges “suggests the path of least resistance for gold and friends is higher.”

Citihgroup Sees $2,000 Gold In The Next 2 Years

Meanwhile, Wall Street’s investment bank Citigroup (NYSE:C) belongs to the school of thought that expects gold to reach for the stars.

Gold could hit historic highs and even break $2,000 per ounce in the next couple of years if recession risks and rate cuts continue, analysts at Citi said in a Tuesday note.

The group upgraded its fourth-quarter target for gold to $1,575, and its 2020 target to $1,675.

It added:

"We find it reasonable to consider an increasing probability that bullion markets can retest the 2011 to 2013 nominal price peaks and trade to $1,800-2,000 per ounce by 2021 and 2022, on the back of a U.S. business cycle turn towards slower growth/recession on top of election uncertainty."

Will Gold Reach For The Stars, Or Just Hit The Tree Tops?
 
Will Gold Reach For The Stars, Or Just Hit The Tree Tops?

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SunilKumar Dixit
SunilKumar Dixit Sep 15, 2019 2:07PM ET
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Barani Krishnan always spot on.
Syed Muneeb Hussain Najfi
Syed Muneeb Hussain Najfi Sep 15, 2019 4:15AM ET
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currently Main point 1480 if break then more sell and if not break then go up side again
Barani Krishnan
Barani Krishnan Sep 14, 2019 3:50PM ET
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Laeeq Ali, I would urge you to read carefully before demanding that I correct. If you revisit the relevant sentence, you will notice that I was referring specifically to gold FUTURES and NOT SPOT. Get a pair of bifocals. It might help.
Hamid Sheikh
Hamid Sheikh Sep 14, 2019 3:50PM ET
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Very informative article Barani; what is your outlook for Gold on Monday's open? will it open with a gap as many analysts are claiming?
Barani Krishnan
Barani Krishnan Sep 14, 2019 3:50PM ET
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Thank you for the kind words. I believe there is a good chance for gold to ride on the coattails of oil if crude spikes $3-$5 a barrel Monday from the Saudi attacks. Add pre-Fed speculative highs, and you could be looking at new 2019 peaks, possibly at $1,570 between Monday and Wednesday. That may be a little frothy from where we stand now, at just under $1500 on spot gold. But we've seen this happen and we'll likely see it again. Be forewarned though: The Fed could disappoint -- again! Don Trump will probably hate them even more :) :) :)
Barani Krishnan
Barani Krishnan Sep 14, 2019 3:50PM ET
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Do follow us @Investingcom. My handle is @barani_krishnan.
Laeeq Ali
Laeeq Ali Sep 14, 2019 6:14AM ET
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xau high was 1550.37 on 29th August 2019,not 1565.00 , please correct yourself
Laeeq Ali
Laeeq Ali Sep 14, 2019 6:13AM ET
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As mentioned that xau high was 1565.00 in August 2019 but as per my knowledge, high was 1550.37 on 29th August 2019. Please give correct information.
Hank Williams
Hank Williams Sep 13, 2019 11:14AM ET
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Protesters hang from Fred Hartman Bridge keeping tankers from entering Houston ship channel. Better than blocking straits in middle east.
Sohail Aslam
Sohail Aslam Sep 13, 2019 10:37AM ET
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well i hink we have to buy at aroud 1485
Mohammed Arshad
Mohammed Arshad Sep 13, 2019 10:19AM ET
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Good information sir
Abdelraziq Abuaisha
Abdelraziq Abuaisha Sep 13, 2019 5:00AM ET
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These numbers of years aren't correct dear writer. At some point everything is going to be moving faster, faster than a jet plane, all of your media now trying to give more years and talk about more times, but is it true that you still do have economic cycle?, the answer is very no dear writer. Your articles are very directed and subjected, but deep in yourself you do understand that there's no economy to write about...As I started by saying: "at some point", I'm finishing by saying: this point is coming very soon, sooner than you and your system can imagine...Wish you a very soft and happy collapse.
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Abdelraziq Abuaisha
Abdelraziq Abuaisha Sep 13, 2019 5:00AM ET
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Barani the case here is not about technicals, the case here is about fundamentals. Fundamentally speaking, we are talking about a system that has peaked, with the basic understanding that all systems go through growth, maturity and decline, we are about to witness the beginning of the decline, that eventually leads to the death of capitalism.
Barani Krishnan
Barani Krishnan Sep 13, 2019 5:00AM ET
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And those same dynamics aren't cast in stone, as you imply. They are dynamic. Today is a good case how the mere mention of US-China talks resumption (I'm as sick of this as anyone) delivered a fresh boost to risk and a knock on safe havens. Like everything else, markets evolve, sir. They don't -- and can't -- stay broken forever.
Abdelraziq Abuaisha
Abdelraziq Abuaisha Sep 13, 2019 5:00AM ET
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Barani Krishnan. . First if you don't know "Big short heyday" refers to what, then you can read about it, simply this phrase refers to the huge sell off that happened in 2008, this to cover the point related to the jet plane move. Those are dynamics, you can say that they are dynamics when they become dynamics again, what drives market Barani should be solid true facts, not your optimism and hope, when there's declining in every where, at the beginning of this weak China announced contraction in manufacturing sector, this is what I mean when I say economic cycle. This economy sir had come to an expansion, where the assets don't cover the huge size of businesses,  if we want to talk about apple for example, its market value is 1 trillion dollars, does apple make sales and has assets to cover this market size?, the answer is no, and this is the definition of bubble. Your whole economy is a bubble; big companies, big market values, and no assets nor production to cover these market values.
Barani Krishnan
Barani Krishnan Sep 13, 2019 5:00AM ET
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Yes, and we LIVE in this so-called bubble, HAVE LIVED in it, and will CONTINUE LIVING in it. Your benchmark for valuations is at best utopian. The world's indexing, on the contrary, will collapse when there are enough who see it the way you do. But till we reach that critical mass, the day's final print is true for each asset, whether you admit or not.
Barani Krishnan
Barani Krishnan Sep 13, 2019 5:00AM ET
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And yes, I've watched "The Big Short" too. I covered the financial crisis as well while I was at Reuters.
Frank Zachman
Frank Zachman Sep 13, 2019 4:17AM ET
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Citigroup thinks gold will move higher on just more than cheaper money. They are worried about the libs winning the white house and going after corporate America and ***the stock market.
Barani Krishnan
Barani Krishnan Sep 13, 2019 4:17AM ET
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Probably, Frank.
Moe Zaw Hthik
Moe Zaw Hthik Sep 13, 2019 4:05AM ET
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Gold is up or down please
Barani Krishnan
Barani Krishnan Sep 13, 2019 4:05AM ET
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Up more likely.
Moe Zaw Hthik
Moe Zaw Hthik Sep 13, 2019 4:04AM ET
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Sir
 
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