Gold Will Reach $1600 by 2016 (Video)

Bloomberg TV interviewed Chris Gersch from Altimus Capital about why he believes gold is due for a price breakout. He sees both technical and fundamental reasons to support gold surging to $1600 in the next year, making him just another stock investor that is waking up to gold’s potential.

The gold price has risen substantially since November, and Gersch thinks this recent spike means a permanent move higher. He also pointed out that gold has continued to hold a steady price despite the dollar’s recent rally — an unusual trend indicating that gold has likely bottomed. Gold has also held steady as European debt has sunk into negative yield territory, making the yellow metal an increasingly attractive option for investors. Finally, Gersch believes that rising demand from India and China will make the price of gold spike.

Follow along with this partial transcript:

Host: When we look at the fundamentals, certainly we can look at how central banks around the world are easing monetary policy. But I want to start here with the technicals of gold and why you believe it’s due for a breakout.

Chris Gersch: The reason I believe it’s due for a huge breakout is just the series of highs or lows it’s put in since November, hitting that $1132 level. We saw it hit $1155 and then maintain that $1185 level that it held most of last year. Now, on this pullback, it just dipped below that $1200, about $1195. A lot of these traders see this move up as a move higher. A lot of traders speculate that if we have any pullback in the local equity markets, especially here in Chicago and in S&P futures, if we see that VIX creep above 18, we’re going to see that $1300 level in the next two months.

Host: You’ve also talked about that inverse relationship that gold and oil share with the US dollar. That’s broken down a little bit over the last couple of months though.

CG: It really has broken down in the last two quarters to be more exact. The fact is that you had oil continue to go down and the dollar continue to get stronger, but that gold still held that $1180 level that I was just talking about. The fact that it continued to hold despite the dollar going on this huge rally means that that relationship is a little off. A lot of traders are speculating that longing the gold index and shorting the dollar index, a little bit of a mean reversion trade, would happen. That puts us in a great position for a bull run for these next two quarters in gold.

Host: Alright, so you’re looking for a mean reversion here. I want to get back to the fundamentals for a moment here. We talked about central banks around the world. There’s a lot of sovereign debt in Europe with negative yields. In fact, RBS estimates almost a third of European sovereign debt has a negative yield now. You say gold is a winner in that environment, but there’s no yield there in gold except for price appreciation.

CG: Correct, there is absolutely no yield in gold, and I don’t want to make that mistake. But it becomes more and more attractive if you are a bond investor. Negative yields just don’t look as good as taking a chance here on gold, especially that it’s been able to maintain these key levels. A lot of traders speculate going into 2016 that the $1500, $1600 level that we haven’t seen in years is once again going to come back to the table.

Host: Alright, let’s talk about other factors, such as India. India is the world’s biggest consumer of gold and they’re making some changes here for a reduction in tax on gold. What kind of effect would that have on the price?

CG: Just what you would assume. Lower the tax, consumption’s going to go up. Not only India, China is also making some moves that’s going to allow consumption to continue to grow in that economy. Therefore India and China, being such big gold buyers previously, I think that appetite is going to come back to the market, once again putting a floor on gold in term of how far it can go down.

Host: Chris, can you qualify what that would mean for a volume?

CG: You could expect an increase of 20% – 25% actually just in the trading on some of the hedging investments… With that sort of increase in consumption, you’re going to see such an appetite hit the futures that $1300 level we think by next year is going to be a forgotten number. I think we’re going to be in the $1400 – $1550 range this time next year.

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