Gold got a little overheated during last weeks monster run above $1,260, so the price decline Monday to around $1,209 was unsurprising as shorter-term traders booked profits and Chinas Lunar New Year buying peaked.
Gold does not have to zoom to $1400/oz in the next few months to validate the new bull market, observed Jordan Roy-Byrne of The Daily Gold. Its more important that it holds above $1200/oz in the weeks ahead.
And so far its doing that. In any other currency than the U.S. dollar, its already in a bull market, noted Robin Griffiths of The ECU Group, predicting a run back to $1,300.
Banks new target is $1,250: Golds lightning-fast resurgence has now forced another big bank to upwardly revise its forecast. Gold has once again become the main risk barometer for global markets, Saxo Bank commodities strategist Ole Hansen said. Traders were caught completely unprepared as the focus at the beginning of the year was on the speed and size of U.S. rate hikes. Due to this, funds were underinvested and as the sentiment changed they were left scrambling to get out of short and back into new long positions.
As a result, we maintain our bullish view on gold, he added.I see gold spending the coming weeks in a range around $1,200/oz as weak longs create downside pressure, which in turn will be met by buying from those missing the initial rally. Thus, Saxo has now raised its year-end target from $1,200 to $1,250.
3 reasons to choose gold: Here are three more reasons why investors should take advantage of Monday price dip:
- Recession dangers rising: Despite Mondays strong stock performance, recessionary winds are still blowing hard. Japans economy contracted by 1.4% in the fourth quarter, and Chinas latest falling import-export volumes also confirmed the ongoing slowdown. Banker William White of the Organisation for Economic Co-operation and Development, who predicted the 2008 crisis, is repeating warning that things are headed south again. At each stage whats been happening is the imbalances in the global economy have been getting worse and worse, he said.
And the U.S. wont be immune to these deflationary forces, according to Cornerstone Macro technical analyst Carter Worth, who is seeing high recession odds.
History tells us that when certain asset classes are acting a certain way, specifically right now gold, utilities, Treasury bonds and spreads and theyre happening after great periods of advanced restraint, theres something there, Worth told CNBC. This is not a good setup. Its very hard to reverse it.
- Desperate central banks mull negative rates: Deutsche Bank, whose financial stability in recent months has been called into question, has issued its own warning about stocks, saying the bear market will continue unless the Federal Reserve takes action. Without policy intervention, there is more downside risk for equities, the bank said in a note titled The smell of default on Monday. We will likely need to see a Fed relent (on raising interest rates), leading to a sustainable drop in the dollar, higher oil prices and reduced energy balance sheet stress.
Other major central banks are already throwing in the towel. Japan imposed negative interest rates in January, and European Central Bank chief Mario Draghi declared Monday that his bank will not hesitate to act at its March meeting.
Despite 637 interest-rate cuts since Bear Stearns imploded in March 2008 and $12.3 trillion in quantitative easing globally, central banks have very little to show for their easy-money policies. Growth is anemic at best, and the world seemingly is falling into another economic abyss.
As a result, forget about the highly anticipated tightening cycle expected from some major central banks, including the Fed. The worlds most powerful central banks will be forced to tear up their plans following the carnage that has engulfed financial markets since the beginning of the year, Londons Telegraph reported. Investors now believe there will not be a single interest rate rise from any of the G7 group of central banks this year, while the number of expected rate cuts this year has increased from zero to six, it added, citing a Danske Bank analysis.
Whats left now for central banks to do but impose negative interest rates? Negative interest rates may herald new danger for financial markets, a separate Telegraph analysis read. However, they could just be the catalyst to jolt politicians and governments into finally making use of their massive fiscal policy tools to rescue the world from the grips of another slump.
What are negative rates? Negative interest rates are simple to explain: People put their money into a bank or U.S. government securities and instead of getting interest on that deposit, they have to pay a fee for the privilege, wrote John Crudele of The New York Post. However, if the Fed decides to go the way of Japan and some European countries in charging savers for the safekeeping of their money, expect massive backlash.
The Fed so far is sticking to its rate-hike guns while only dancing around the notion of negative rates, but probably not for long. Part of the problem is that it is consistently wrong, said Tim Duy, an economics professor at the University of Oregon. The Fed doesnt seem to recognize how terrible their forecasts have been.
- Syrian conflict could widen into all-out war: You likely havent been hearing much about it in the mainstream news, but the Syrian conflict has the potential to escalate into a massive outbreak of hostilities. Russias prime minister last week warned Saudi Arabia and Turkey against sending troops and/or arms into Syria.
All sides must be compelled to sit at the negotiating table instead of unleashing yet another war on Earth, Dmitry Medvedev told a German newspaper. Any kinds of land operations, as a rule, lead to a permanent war.
The Americans and our Arab partners must think well: do they want a permanent war? Do they think they can really quickly win it? It is impossible, especially in the Arab world. Everyone is fighting against everyone there.
For more on a massive military exercise getting under way in northern Saudi Arabia and involving not only Saudi troops but also those from the United Arab Emirates, Egypt, Jordan, Bahrain, Sudan, Kuwait, Morocco, Pakistan, Tunisia, Oman, Qatar, Malaysia, and other, see this post from The Economic Collapse blog.
Needless to say, the outbreak of wider war wont be good for business as usual, and thats yet another reason to hedge against the unexpected with gold. As former Federal Reserve chief Alan Greenspan has noted, gold is a go-to currency during wartime: Gold, and to a lesser extent silver, are the only major currencies that dont require a third-party credit guarantee. Gold is inbred in human nature. Gold is special. For more than two millennia, gold has had virtually unquestioned acceptance as payment to discharge an obligation. Remember, Germany could not import any goods in the last part of World War II unless it paid in gold.
Recession, money printing, and the potential for a widespread explosion in the Middle East between superpowers and their proxies: The reasons to hold gold have not loomed this large in a long time, and thats why the recent price pullback near $1,209 could be a major buying opportunity for longer-term investors.