There are gold bulls and then there are ultra gold bulls. Count HSBCs chief precious-metals analyst, James Steel, as a garden-variety bull.
Gold is more likely to churn higher, HSBCs James Steel told Bloomberg on Tuesday. We got up to the $1,300 level before hitting resistance, he added. Were moderately bullish. Steel recommends gold chiefly for its insurance and portfolio-diversification properties, with any price gains seen as an added bonus.
And Sprott Asset Management CEO John Wilson classified himself as a pragmatic gold bug in an interview Monday. One of the biggest arguments against gold is that it doesnt bear any interest, it doesnt generate any income. But in a world of negative interest rates, thats better than negative. If you combine with that the fact that it does appear, for the first time since the financial crisis, that central banks globally are maybe running out of what they can do next, that is a bit disconcerting for global investors, and they look to gold as a place to be safe.
$1,400 very much in the cards: But count as an ultra gold bull Solita Marcelli, managing director and global head of fixed income, currencies, and commodities at JPMorgan Private Bank. In her view, gold has a long way to go higher from just under $1,300.
We think that gold can go a lot higher from here, she told CNBC on Tuesday. Were actually recommending to our clients to position here for a new and very long bull market for gold, and I think $1,400 is very much in the cards this year.
Whats behind her bullish view? Negative rates, of course. In fact, she sees gold as eventually replacing sovereign bonds as the go-to safe-haven trade. I think with so many negative nominal rates around the world and even more countries having negative real rates, gold is looking more and more attractive every single day, she said.
When you compare it to negative-yielding assets, it actually pretty much has a positive carry, she added. Also, I think central banks might consider diversifying their reserves into gold with the fear that they might be getting negative rates on their existing holdings, and gold is a great portfolio hedge, I think, in an environment where the world government bonds are yielding at historically low levels. In a way, gold may replace government bonds as the next risk-off trade, so were very hopeful on gold.
More retail participation to come: Despite this weeks correction, which largely stemmed from some unexpected dollar strength, Marcelli is sticking to her guns. In the near term, we might see a mini-correction and a healthy correction because were seeing some extreme positioning, especially in the futures market, so we could see it down to $1,260 or so, or even below, but I would say that $1,400 is very likely this year, she said.
Look for the retail investor to return to gold this year. Although ETF inflows have helped drive gold higher this year, holdings are nowhere near their all-time highs. Gold has moved very fast, so theres a little bit of profit taking there, and I think when that you see more risk-off sentiment in the market and more negative yields coming into the market, theres going to be even more retail participation that we would see in the ETF market, she concluded. I think we saw fast money coming in, but even though ETFs have picked up significantly in January, February, were nowhere close to where the peak was in 2012. So I think people are watching the Fed, watching where the dollar is going to go, but I think there is going to be more legs to the gold rally this year.