Major Players Predicting Higher Gold Prices for 2017
Despite the recent slump in gold prices, many influential analysts like Raoul Pal and firms like UBS are predicting a strong showing for gold in the next 12 months. Their beliefs are based on strong indicators of a looming recession, negative interest rates, and a downshift in global trade.
Influential investor and founder of Global Macro Investor, Raoul Pal, predicts a U.S. recession within the next 12 months and sees gold as the best currency to have on hand. In a MarketWatch article, Pal said the recent drop in gold prices is short-lived and that continued negative interest rates and a coming economic collapse will move more investors to gold for wealth protection. Greater demand will then drive prices higher.
“As we get to negative interest rates, gold is a good place to park your cash,” says Pal, “I’m not a gold bug … but this is the currency I would choose now … All the really serious thinkers are interested in gold.”
One of the strongest, most accurate indicators of economic health for Pal is the Institute for Supply Management index (ISM), a survey based on more than 300 manufacturing firms. The ISM rose slightly in September over the previous month to 51.5%. However, many economists like Pal still see many challenging conditions within the manufacturing sector, not to mention the unrealistic rosy economic pictures being painted by politicians and the Fed.
“There’s a difference between the narrative, which is what you’re being told, versus the reality of the economic data,” he states. “It’s in no one’s interest ahead of the election to say the U.S. economy is a mess — [that] world trade freight shipments, container shipments, retail sales, restaurant sales, factory orders, durable orders are all showing a recession.”
Also not a fan of U.S. stocks, Pal believes the ISM correlates well with U.S. assets. “It peaked in 2011 and has been bouncing around 50 for a while now. The moment it starts to get to 47, 46, the odds of a full-on recession explode to 85%. We’re very close now, getting to the point where the probability is very high.”
The former Goldman Sachs alum also points to the election cycles and historical precedents citing that since 1910, every two-term election has “had a recession within 12 months.”
Financial firms like UBS are also seeing signs of a gold rebound within the 6-12 months based on the continued low interest rates. Strategists at the bank’s Chief Investment Office Wealth Management Research arm seeing gold doing well as long as “the Federal Reserve sees no reason to raise interest rates in a hurry.”
HSBC Group Inc. are advising clients to get into gold based on “the prospect of a looming downward shift in globalization.” Given the US election, Brexit, and other economic uncertainties, many countries are taking an isolationist stance with regards to trade, which according to HSBC analysts means good news for gold.
The firm’s Chief Precious Metals Analyst James Steel said in a note published on Friday that “demand for gold is often stimulated by the same factors that fan protectionist and populist sentiment” and that “abrupt declines in cross-border trade, investment and immigration, the dislocation of global economic policies, and a beg-thy-neighbor approach to trade is almost tailor-made for higher gold prices.
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