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Survey: Precious Metals Retailers Bullish on Gold and Silver

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Precious metals dealers are bullish on gold and silver in 2018.

According to an informal survey conducted by the nonprofit Professional Numismatists Guild, retailers anticipate gold will reach $1,460 this year, and perhaps climb even higher. They also like silver’s prospects, projecting the price to hit the $20 per ounce mark.

APMD surveyed 25 leading precious metals dealers. The average of their estimates for the price of gold at the end of 2018 came in at $1,461.33 an ounce. That would represent close to a 12% increase, comparable to the gain in 2017.

Estimates on the silver price were more varied, ranging from a low of $16.25 to a predicted high of $30.70. The combined average estimate for the end of 2018 was right at $20.00 per ounce.

The survey also indicated many dealers have increased their projections over the last few weeks due to speculation about additional Federal Reserve interest rate hikes, potentially higher oil prices, higher inflation in the United States and Europe, and a weaker US dollar.

Retailers aren’t alone in their bullishness.

GFMS Thomson Reuters released its 2017 Fourth Quarter Gold Survey this week. Its analysts predicted we could see $1,500 gold by the end of the year, despite concerns about Federal Reserve tightening.

We believe that the geopolitical climate and equity markets will continue to support gold’s role as a risk hedge … Our forecast discounts three Fed rate hikes, although a potential overheating from the effect of the new tax reform could lead to more aggressive tightening, limiting gold’s upside.”

The survey focused specifically on Fed policy, saying interest rates will likely play a key role in the gold market this year.

A continuation of US monetary policy tightening will undoubtedly weigh on gold, and the rest of precious metals for that matter, however, the fact of tightening itself has long been absorbed by the markets and it is the tone of future meetings and conferences and the pace of rate increases that will play a more pivotal role … Should the Fed appear more concerned about tepid inflation and take on a more gradual path of rate increases, the yellow metal is likely to benefit. On the other hand, a bolder approach to tightening could present a bigger drag for the precious metal.”

GFMS seems to be following the conventional wisdom that rate hikes are bad for gold. Interestingly, precious metals dealers don’t appear to buy into that conventional wisdom. Note that the retailers surveyed listed rate hikes as a reason for increasing their price projections. They likely recognize the reality tends to be to sell the rumor of hikes and buy the fact. As AJ Bell analyst Russ Mould told the Telegraph the conventional wisdom is “a total fallacy,” and he cited data to back up his claim.

During the seven cycles of higher US interest rates the metal has on average gained 86% between the first increase and the last – and gold is already up by 23% since the first rise of this cycle, in December 2015.”

Central banks won’t generally raise rates unless they believe inflation is approaching their 2% target. In other words, rate hikes signal the existence of, or at least the expectation of, inflation.

As Peter Schiff has explained, inflation is key when it comes to gold.

Rising interest rates are not negative for gold. I mean, the main reason that interest rates are rising around the world is because inflation is picking up around the world. Higher inflation is positive for gold. I mean, it is the most bullish thing for gold. And in fact, when inflation rates are rising, that means money is buying less, right? The purchasing power of money is going down. And that’s when you want to own gold.”

And while higher rates tend to boost bond yields, inflation is not a friend of the bond market. Bonds lose value as inflation increases. That is bullish for gold because gold is something you would own as an alternative to bonds.

A bear market in bonds is bullish for gold. But for some reason everybody just thinks, well, if interest rates are going up, that just makes gold less attractive because you’re giving up the opportunity cost. It makes bonds less attractive, because bonds are falling in value. It makes currency less attractive because interest rates are rising because currency is losing value. But gold won’t be losing value. Gold is going to be storing value.”

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