We think that the recent setback in gold prices is temporary and drivers will turn more positive again, leading to higher gold prices later this year and next year, ABN AMRO strategist Georgette Boele wrote in a note this week.
The Dutch bank remains bullish on the yellow metal, and here are three more reasons why golds ascent isnt over, summarized from recent commentary from other respected financial analysts:
Seasonal weakness is normal: With summer about to begin, golds pullback is no surprise. The price tends to follow seasonal patterns, with the hotter months historically serving as its low point for any given year.
As U.S. Global Investors CEO Frank Holmes noted, citing a chart covering the past 30 years, in all periods, gold contracted in May to early summer, then rallied in anticipation of Ramadan this year beginning June 4 and Indias festival of lights and wedding season. India has one of the largest Muslim populations in the world, and for at least 5,000 years theyve adhered to the tradition of giving gold as gifts during religious and other celebrations.
Predictably so, the yellow metal has retreated somewhat this month, following its best start to a year in 30 years and its best-ever first quarter for demand. Thus, the price lull were seeing now is nothing new.
Most oversold since December: With the gold price falling to four-week lows under $1,230 Tuesday, the metal is ripe for the taking by bargain hunters. Right now, just looking at the Relative Strength Index, gold is the most oversold its been since mid-December, so this is an ideal opportunity for those who have not gotten in to get in now, Lindsey Group strategist Peter Boockvar told CNBC on Tuesday.
All the more reason to buy now is that Boockvar sees a rebirth starting for gold. This is just the beginning of a new bull market in the metals, he said predicting that the price would top the 2011 nominal record high above $1,900. I dont think the Fed is going to be able to get away with more than one rate hike. On the new price record, he cautioned, I dont know when it will happen; I do think it will happen, though. And if it is a new bull market, if Im correct with that, well, typically, new bull markets exceed the prior bull market peak at some point. Whether it happens in a couple of years, Im not sure, but Im pretty confident that it will get up to those levels and will likely exceed those levels, as markets tend to overshoot.
A Fed rate hike could pound stocks: Interest-rate hikes will hurt equities, which have become dependent on easy-money policies from the Fed. Equity markets will probably go down 10%, which they did, or close to it, twice before, once August 2015, the second time January 2016, gold expert and author Jim Rickards told RT this week. Both times the markets fell off a cliff, and in January you had a more than 10% technical correction. And the reason for this is that throughout most of quantitative easing, QE1/QE2/QE3, the Fed was trying to operate through what they call the portfolio channel, which is, Ill make fixed income so unattractive for you, with such low rates, that youll go out and buy stocks and real estate, pump up the asset values, create a wealth effect, people will lend and spend. The problem is theyve created two bubbles. Theyve got a real-estate bubble; theyve got a stock bubble. Those channels arent working anymore. The stock market really peaked out in kind of May 2015. Thats not the technical high; but its just gone sideways with a certain amount of volatility for over a year at this point. My guess is they wont raise rates, but if they do, look out below.