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Three Reasons Gold Could Hit $1,500 in 2018

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Yesterday, we reported that some of the big mainstream players in the investment world, including Goldman Sachs, have suddenly gone bullish on gold. They aren’t alone. US Global Investors CEO Frank Holmes said he thinks the yellow metal might hit $1,500 per ounce this year.

Even with the headwinds caused by Federal Reserve monetary tightening, gold has had a pretty good start to 2018. It’s up close to 3% on the year. In fact, gold is one of the best-performing assets so far this year. As of March 23, gold had outperformed the dollar index, the S&P 500, US Treasuries and the Bloomberg Commodity Index. 

Holmes thinks gold will continue to shine this year and he offers three reasons why.

1. Inflation

Holmes believes inflation is being understated.

Inflation could be growing a lot faster than what the government is telling us.”

The mainstream generally talks about inflation in terms of the consumer price index. By that measure, inflation was up 2.1% year-on-year in December. The New York Fed’s recently launched Underlying Inflation Gauge, rose nearly 3% that month. But Holmes said if you calculate inflation using the official methodology in place before it was revised in 1990, inflation is up closer to 10%.

No matter which gauge you look at … inflation is trending up.”

This is one of the reasons Peter Schiff has continued to insist the Fed’s push to raise interest rates really isn’t bad for gold. Central banks generally hike rates when they see inflation on the horizon.

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.”

2. Weakening Dollar

Holmes pointed out that a weak dollar is good for commodities in general. This includes gold. And the greenback has been tanking for the last year. The dollar index is down about 3% so far in 2018.

Holmes told MarketWatch he think’s Pres. Trump’s actions, overall, have been bullish for gold, particularly as they’ve contributed to a decline in the buck.

In early 2017, Trump told The Wall Street Journal that the US currency was “too strong.”  Earlier this year, Treasury Secretary Steve Mnuchin said a weaker dollar was “good for us as it relates to trade and opportunities.” Holmes summed up the ramifications.

Americans like to hear that the dollar is strong, but a weak dollar makes American exports and tourism rock, not to mention gold prices go up.”

Peter has been saying that when the air really starts coming out of the stock market bubble, the Fed will come to the rescue with more easy money. That will set off a chain reaction and drop the dollar even further.

The US stock market is going to stop going up and start going down. It has to. Because higher inflation, higher interest rates are going to weaken the economy. They are going to undermine corporate earnings. This whole euphoric rise is going to end with a crash. It has to. And then, it’s going to usher in a bigger crash in the dollar because we know what the Fed is going to do. When the market is going into recession, when the stock market is tanking, they are going to reverse course.”

3. Rising Incomes in China and India

Holmes echoes one of the points the World Gold Council made when it said gold is set to shine in 2018. As the economies in China and India grow, so will the demand for gold.

Our research shows that continued economic growth underpins gold demand. As incomes rise, demand for gold jewelry and gold-containing technology, such as smartphones and tablets, rises. Income growth also spurs savings, helping increase demand for gold bars and coins.”

Holmes calls it the “love trade” referring the yellow metal’s popularity as a gift in the form of jewelry, particularly from the beginning of the Indian wedding season in September until Chinese New Year in February.

According to the 2018 World Economic League Table, India will leapfrog France and England in 2018 to become the world’s fifth largest economy in dollar terms. The report also predicted that China will overtake the US as the world’s biggest economy in 2032.

Of course, there’s no way to know for sure what will happen this afternoon, much less later in the year. But there certainly is a lot of bullishness for gold, even in the mainstream. Now might be a good time to consider buying gold.

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