$3,000 gold in 3 years, bull predicts, while HSBC team sets nearer-term $1,500 target
Underpinning gold prices the most is a continuing belief that the Federal Reserve is backing away from the hawkish policy it adopted in December 2015 with its first interest-rate hike in almost a decade. Fed chief Janet Yellen re-emphasized her dovish approach in a new interview with Time magazine, saying the great deal of uncertainty about the global economy justifies her cautious stance as she strived to avoid the big mistakes.
Falling retail-sales numbers for March, as well as an unexpected drop in wholesale prices, add fuel to the Yellens argument that the U.S. recovery remains on shaky ground. Meanwhile, the IMF just slashed global growth forecasts again, while its former top economist warned that Japan is in the terminal stage of an unsustainable debt spiral.
Gundlach still bullish on gold: And DoubleLine Capital exec Jeff Gundlach reiterated his belief that the central bank will stay with its easy-money approach for the rest of 2016, saying he thinks the Fed is one and done in terms of rate hikes this year. I remain bullish on gold; I own gold miners, Gundlach told his clients.
Top Deutsche Bank economist Joseph LaVorgna also predicted ongoing easy-money policies from the Fed, saying corporate debt levels have grown to high for the central bank to risk lifting rates too much.
Currently, the ratio of nonfinancial corporate debt to national income is nearly 45%, an elevated reading that suggests corporate balance sheets are not in particularly good shape, LaVorgna said. Contrary to much of the recent non-Yellen FOMC rhetoric, we believe the Fed will not be able to hike rates very much off their current level.
TDS sees potential $1,307: A weakening U.S. dollar from the Feds policies is one reason that TD Securities sees gold targeting $1,300 this year, along with concerns about a Great Britain exit, or Brexit, from the European Union.
Reduced opportunity cost of holding gold and a limited pool of assets investors/managers have available to hedge against Brexit-related volatility would suggest that prices may still test recent highs near $1,285/oz. if not $1,307/oz. as the quarter unfolds, said TDS analysts.
RBC scenario would hit $1,546: And following RBC Capitals 9% increase in its gold price targets, two of its analysts have issued an ultra-bullish note on the yellow metal. Tyler Broda and Alexandra Slattery see parallels between todays environment and the 1970s when it comes to gold.
A dovish stance has raised the risks for inflation, they wrote, and real rates are now trending back down again along with an increase in gold ETF demand and the gold price.
Based on a regression analysis holding gold as the independent variable, a negative 0.5% real rate level would suggest a gold price of $1,380/oz and a negative 1.0% real rate level would suggest a gold price $1,546/oz.
They conclude: Gold investment appears to be moving towards stronger fundamentals than we have seen over the past few years. In summary, should U.S. monetary policy not be on the path to normalization, a fundamental change in the benefit of gold ownership is taking place, and this increased investment demand should lead to higher gold prices. There is increasing upside risk to gold prices.
Initial target of $1,500 for HSBC: And an HSBC technical team also sees big upside for gold, citing Elliot Wave analysis.
The U.S. dollar price of gold is in an uptrend with a bullish Elliott Wave structure, said Murray Gunn, HSBCs head of technical analysis.
With momentum turning up we open a long position at a spot reference of $1,260. A stop-loss is set at $1,200 with an initial target of $1,500.
Perfect storm could spell $3,000: And speaking at the recent Dubai Precious Metals Conference, Diego Parrilla, co-author of The Energy World Is Flat, predicted that gold could top $3,000 in the next three years. A perfect storm for gold is brewing, he said. Central banks continue to push and test the limits of monetary policy, credit markets, and fiat currencies, which could result in gold prices above $3,000/oz. within three years.
Parrilla thinks that now is the time to buy the dips because gold has few hundred dollars of downside from here but a few thousands of dollars of upside from here.