The world is a scary place these days. Fortunes can be made or lost in the blink of an eye, but through it all gold still remains a safe-haven investment. This month Gold broke through the $1,300 mark. There are a number of reasons that could set and sustain gold’s bull run.
Looking at all the geopolitical issues today, very few seem like they will be resolved anytime soon. North Korea has not been resolved, Israel is as volatile as ever, ISIS is not relenting, America won’t fix it’s dysfunctions and President Donald Trump won’t become anyone but himself. The stock market will also continue to look like a bubble unless someone decides to burst it.
The latest data from the Commodity Futures Trading Commission shows that money managers have taken a bullish stance with gold. Gold has been bullish for almost 11 months. This could be due to the following:
– Global interest rates staying negative.
– High broad equity valuations and complacency.
– The U.S. Dollar enters the bear market.
– The surge in demand for gold from countries like China
The most pertinent of these four is the broad valuations and market complacency. Let’s look at the valuations by starting with the S&P500.
It is currently overvalued because of this belief that Trump’s intention to cut corporate tax will drive future earnings in a positive direction. However, slashing corporate tax may have a bad effect on a company’s valuations.
We can debate how much of a safe haven gold is luckily, there is a well documented history of gold’s performance over the years. Between 1961 and July 2017, the gold price returns were positive, especially when inflation went up and stock market returns were in negative numbers. Indications show that we can expect gold to be strong against a weak dollar.
Complacency has affected a lot of market analysts and other qualified financial commentators. A lot of people expect the gold market to be sky high given the state of affairs in the world. Take into account, Brexit, Trump trade tariffs, the Iran deal, climate change, etc.
The best time to buy insurance, in this case gold being insurance against economic depression, is when the risk event isn’t the imminent threat at the forefront of investors’ minds. Gold is currently an under owned, underappreciated commodity which could turn out to be the best insurance to buy into right now.
According to JP Morgan’s money managers hold the view that gold could reach peaks of $1,400 by the end of the year. Gold’s fluctuations over and under $1,300 is an expected reaction as the market has to self-correct before it can begin to climb again. Banks like JP Morgan and many money managers believe that gold has entered a bull market.
If you have been sitting on the sidelines waiting to buy gold, then this could be lowest that gold will be for a while. We may be headed higher, but how long it will take and what will trigger that surge past the $1,300 threshold no one really knows. The time to buy gold is now!