Gold price forecast for next week
By Dan Atkinson
09:51, 15 June 2020
For the gold market, the bull is very definitely still running.
Friday morning saw the price up 0.83 per cent at $1,731.90 an ounce. The day before it had been trading at $1,717.65, and a month earlier, on May 11, the price was $1,698.80.
Three months earlier, on March 11, it had stood at $1,662.50 and on June 12, 2019, it traded at $1,336.65.
In other words, the price has risen by 29.5 per cent in the past 12 months.
Ultimate safe-haven asset
So what lies immediately ahead as we move into mid-June? In making a gold price forecast for next week, it is tempting to predict more of the same. After all, warnings that bullion is in bubble territory have so far proved wide of the mark, and there seems no particular reason to expect that the coming week will contain any developments that could break the rising price line and trigger enough selling to turn things round.
The bull case for gold rests on a number of factors. The first is that central banks are continuing to print paper money in large quantities to stabilise their economies in the wake of the coronavirus and to ameliorate what was expected to be a new recession even before the disease struck.
As national currencies become less useful as a store of value, so gold – famously the only monetary asset that is nobody’s liability – appreciates against them. For as long as the printing presses are rolling, the gold price can be expected to rise.
The second is that, even if paper currencies were stable, the huge amount of uncertainty in the world would make a case for gold. Universally acceptable as a medium of exchange, impossible to fake and, in the form of coins or jewellery, reasonably portable, gold is the ultimate safe-haven asset.
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Greed clouding judgment?
The third is that the major handicap of gold investment, that it produces no return, is considerably less important in a world where cash and bonds generate near-zero returns – and even less when negative interest rates are applied.
Finally, when the gold price performance is adjusted for dollar inflation, it looks a lot less “toppy”. In today’s money, the 1980 peak is about $2,500, and we are currently, in face-value terms, below the $1,895 seen in 2011.
For the trading week ending June 19, it would seem reasonable to assume that upward momentum remains with gold and that traders should act on the old adage that “the trend is your friend”.
But any gold price analysis has to take account of the more pessimistic case. This, too, rests on several factors.
The first is that the gold-silver ratio is flashing warning signs. This divides the gold price by the silver price and tells us how many ounces of silver would be needed to buy an ounce of gold. The average for the past 20 years has been about 60. Currently it is a little off a recent peak of 110.046 on May 11 but was still standing at 96.63 on June 11.
Once the ratio runs significantly above the average, the incentive is for traders and investors to swap gold for silver. The latter may not have the lustre of gold, and demand is complicated by its greater industrial use than that of the yellow metal, but for all that it is a bullion metal.
The second is that the temptation to take profits will be strong among those who have ridden the price surge of the past 12 months. Once gains top 29 per cent, many may fear this is as good as it gets and that to hang on for more would be to commit the classic error of allowing greed to cloud their judgment.
No serious threat to gold yet
The third is that economy recovery could be much sharper than is currently thought. If that is the case, then profitable investment opportunities will abound and gold will lose its shine.
Finally, linked to this, is the fact that the ultra-loose monetary policies of the present may seem indefinite, but nothing ever is. In the Seventies, double-digit inflation, often heading for 20 per cent or beyond, seemed the norm in Britain and America, but within a relatively short period it was back into single figures.
However, next week, the betting has to be on a continued rise. Gold may well meet resistance at $1,800, but it is not there yet. Furthermore, for gold to suffer a serious reverse would require a revival in the returns on conventional assets.
It was said that the real rivalry in the beverage world was not Coca-Cola versus Pepsi, but Coca-Cola versus tea, coffee and anything else consumers preferred to Coke. Similarly, while the rivalry between gold and the dollar is important, the real divide is between gold and all the other assets, the ones that pay returns and do not incur storage costs.
There is no sign yet that conventional assets are posing a serious threat to the gold price, at least not in the immediate term. But always remember the words of the late Robert Beckman, UK radio stock-market pundit: “Markets will do whatever they have to do to make sure that most people are mostly wrong most of the time.”