What’s Next For Gold Prices?

Written by Jason Simpkins
Posted August 9, 2019

By this point, you probably know gold is making a major breakout, having surged to a six-year high.

This is something many of us had been expecting for months if not years, but not everyone listened.

Well, that’s fine, because there’s still plenty of room left for gold prices to run.

Goldman Sachs believes it’ll keep rising from $1,500 per ounce to more than $1,600 in just the next six months.

“If growth worries persist, possibly due to a trade war escalation, gold could go even higher, driven by a larger ETF gold allocation from portfolio managers who still continue to under-own gold,” the investment bank wrote in a note Wednesday. “Gold ETFs have recently built momentum almost as strong as in 2016, and we believe that can be maintained in the short-term.”

Indeed, North American gold-backed ETFs actually experienced outflows in 2018, as holdings fell 1.3%, or 13.4 tonnes worth $667.4 million.

In contrast, Europe-based gold ETFs saw a 10% increase, with holdings rising by 96.8 tonnes worth $4.5 billion. This, of course, was driven by the Brexit chaos.

North Americans, meanwhile, enjoyed solid economic growth and raked in a massive corporate tax cut that helped feed massive stock gains. They eschewed gold as the Fed continued to raise rates.

But suddenly, things aren’t looking so rosy. And now that the Fed has flung into panic mode and backtracked on rates, gold is looking much more appealing.

It’d only make sense for banks, hedge funds, and retail investors alike to reevaluate.

The SPDR Gold Trust (NYSE: GLD) is up 12.5% so far this year, reaping $1.7 billion in fresh cash from investors. The No. 2 gold ETF, the iShares Gold Trust (IAU), has taken in $1.3 billion.

Like Goldman Sachs and others, I’d certainly expect that trend to accelerate — especially if the economy gets worse and the market continues to slide.

“The world right now is in a precarious state and gold is due to benefit from this situation,” said Oversea-Chinese Banking Corp. economist Howie Lee. “We are seeing a perfect mix of ingredients in the melting pot: We have low rates, we have soft dollar, we have trade tensions, we have geopolitical tensions along the Persian Gulf.”

“Gold still stands up among all the precious metals because of its pure usage as a safety hedge,” Lee added.

And that’s why Goldman’s $1,600 call could be under-selling gold’s potential.

A move to $2,000 per ounce or beyond could very well be in the cards six months to a year from now.

So gold is definitely still worth investing in.

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Fight on,

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Jason Simpkins

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Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of The Wealth Warrior, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

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