Gold Bull Market Momentum to Continue in 2016
Supportive Macro Conditions
JOE FOSTER: The Fed is finding it difficult to raise rates as aggressively as it wants to. And Brexit has created a drag on global growth and that will further inhibits the Fed from normalizing rates in the U.S. Also, the poor U.S. jobs report that we saw in May indicates that the U.S. economy is not doing that well. The Fed really has its hands tied. We doubt that the Fed will be able to raise rates this year, maybe not even next year. And if the Fed isn't able normalize interest rates, it really limits the tools it can use to stimulate the economy.
Gold’s New Bull Market
FOSTER: Gold has been very strong this year, and very resilient. It has been moving on the increased financial risks from around the world. We think that this strength will continue. We think there is a significant amount of uncertainty -- especially around Brexit. Second of all, there is uncertainly around the presidential election in the U.S. And investors are very nervous about the implications of negative rates in Europe and Japan. There have been many concerning financial issues arising from Brexit and other events.
I think we are in a new bull market for gold. There are a couple of reasons why I say that. First, technically gold is, we believe, establishing a new positive trend. Second, this trend is underpinned by fundamentals that are based on investors being very worried about financial risks. Central bank policies have not had the intended effect. They haven't brought the global economic growth that was promised. We are seeing central banks resorting to increasingly radical monetary policies, such as negative interest rates. This has investors very nervous and they are turning to gold as a safe haven investment. We think this is likely to continue for the foreseeable future.
Gold Outlook: “You Ain’t Seen Nothing Yet”
FOSTER: For those who think they have missed it, all I can say is, you “ain't seen nothing yet.” We think that this may be the continuation of the secular bull market that started in 2001. All of the things that brought that market to a peak of over $1,900 an ounce in 2011 are still in place: the financial risk (mainly the concerns about central banks), the quantitative easing, the low interest rates, now negative interest rates, talk of helicopter money. These are very dangerous monetary policies to be implementing, and we think they could have many unintended consequences. We think that will propel the next leg of this secular bull market.
In the 1970s, we saw a mid-cycle correction in 1974-76, roughly. After that mid-cycle correction, gold went on to make new all-time highs of over $800 an ounce in 1980. I think of the bear market we have just had in gold as also a mid-cycle correction in an ongoing secular bull market. I don't see any reason why, if things continue as they are, we can't see new highs in gold over the next two, three, or five years. We don't know the exact time frame, but it is very possible to see new highs in this gold market in the foreseeable future.
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