Is gold is headed for a 10-15% rise

Gold prices are up 6% this year so far, easily outdistancing stocks, and Jeffrey Reeves of MarketWatch thinks they might be headed higher, as much as 10% to 15% higher, toward a $1470 level. Here are some of the reasons he’s looking for upside.

  • Negative sentiment: Reeves points first to sentiment, which is extremely negative Witness renewed outflows from gold ETFs even as prices rose. Since January, the SPDR Gold ETF has shed 18 tons or $667 million in gold holdings, according to Barrons. That kind of pessimism put the brakes on gold’s recent ascent past $1300. Still, says Reeves, “As the saying goes, the time to buy is when blood is in the streets — and after a beating like this and such derision for investors, it is hard to imagine how the sentiment on gold could get much worse.”
  • Political instability: While no major wars are in progress, Reeves says that numerous local tensions could escalate and trigger a flight to risk-free assets. He points to ongoing conflict in the Ukraine, civil war in Syria, a mass kidnapping in Nigeria and a spate of bombings in Iraq and Afghanistan examples. “This kind of environment, when many developing nations have unstable governments as Western nations are grappling with how best to avoid the damage, is when gold tends to shine best as a ‘safe haven’ investment,” he says.
  • Monetary policy: Right now, the end of QE isn’t hurting stocks or bonds that much, but that won’t last forever. “When both bulls and bears are expecting a correction of some kind, it doesn’t bode well for the short-term prospects of stocks, particularly as we enter the thin volume after first-quarter earnings have wrapped up and traders check out for the summer,” he says.

“But given the sentiment setup and the lack of alternative, I wouldn’t dismiss gold investment out of hand this summer,” he concludes. “There is sure to be volatility, but if the recent strength in gold prices continue, that volatility could be in your favor across the next few months.”