Gold can take out $1,350 this year, says Capital Economics
Even before Tuesdays robust performance in the precious-metals sector, several respected analysts continued to argue that gold has further room to run higher.
Bloomberg published an April 18 article titled Golds best forecasters see rally resuming on rates caution, in which top analysts from Capital Economics and Cantor Fitzgerald submitted their opinions on the yellow metals prospects.
Gold resilient as investors dig in: Capitals Simona Gambarini sees the metal advancing to $1,350 by the end of 2016, while Cantors Rob Chang also predicted gold would rise, but perhaps not to that level this year.
Both analysts think the Federal Reserve will raise interest rates twice this year, and Gambarini thinks gold will grab a second wind after a potential June rate hike. The gold price has been quite resilient, which means that investors have definitely changed their attitude towards gold.
And citing a cautious Fed, Chang predicted gold will continue its march higher, albeit at a more conservative pace.
Gold is gonna take off: And Kyle Bass of Hayman Capital also weighed in on gold in a couple of recent interviews, telling Fox Business that gold has the wind at its back thanks to the growing preponderance of negative interest rates.
On paper, negative rates make a lot of sense if youre running academic models, but in reality they make no sense, Bass said. This experiment thats going on we all know will end poorly at some point in time. I just dont know when that time is.
Of course, the central bankers know that negative rates can only work if depositors arent hoarding cash. Thats why weve seen high-profile economists and bankers like Larry Summers and Mario Draghi advocate for abolishing higher-denominated currency notes. I think that one of the fears that they have is a run on cash, Bass said. If they told you and I that theyre going to tax your deposits by a hundred basis points, well, its better to put it in a safe or under your mattress. And thats why you see a resurgence in gold. The more they move to negative rates, the more gold is gonna take off because theres no carrying cost.
Central bankers cant print gold: And in a separate Bloomberg appearance, Bass also came out swinging for gold in a world dominated by money printing. Weve always had a position in gold, he said. When you think about the largest central banks in the world, theyve all moved to an unlimited printing ideology. Monetary policy happens to be the only game in town. Im perplexed as to why gold is as low as it is, but I dont have a great answer for you other than you should maintain a position. At some point in time Id much rather own gold than paper. I just dont know when that time is. They cant print any more of it. They can mine some more, but they cant print it at the rate that central banks are printing. I just view gold as another currency, its that simple. I dont view it as a commodity.
And although not an economist, former Congressman Ron Paul of Texas also thinks precious metals are indispensable in the current environment fostered by the Feds interest-rate manipulation.
Long-term its not a very good investment, Paul said of stocks in a CNBC interview. I think were going to go through cycles as we have been whether its the Nasdaq bubble, the housing bubble, or the current bubble. Everything is so out of whack when you look at interest rates at zero and now maybe negative so I think its a very dangerous place to be. Long-term Im not very confident that Im going to put my retirement money into the ordinary stock market. I think that were facing a downturn thats probably a lot worse than what we had in 08 and 09.
Silver looks pretty good: On precious metals, Paul said, In 1971 when Bretton Woods closed down, I bought for the next decade gold and silver and held it as my nest egg and that has done well. And I havent touched that too often, but a month ago though, I bought some silver, and so far it looks pretty good, especially today. ... Gold is money, and I think silver is still money, and its sort of catching up, and I was pleased with buying silver about a month ago.
Paul predicted that the U.S. will have to start handing out money (so-called helicopter cash) in order to generate spending. We are destined to continue to spend, continue to run up debt, and continue to print money, and even with the next recession coming when were at zero interest rates, boy, they are going to start passing out money is what theyre going to do.
And those sorts of currency-destroying, inflationary policies are exactly why investors need to have staunch allocations to gold and silver. Numerous analysts think the near term looks positive, especially once gold takes out resistance at the $1,270 level. And certainly the long haul looks even brighter for precious metals given the borrow-and-spend future that Paul has outlined.