Market Analysts Call for Higher Gold Prices in 2019

Market Bulls  |

Despite gold's relative underperformance on a YTD basis, an increasing number of analysts have become bullish. As we discuss in this article, many financial firms have already raised their price targets for the precious metals markets in 2019.

Perhaps the best-publicized bullish calls have been made by Goldman Sachs  (GS), as the firm has turned even more bullish on gold this year. In January, Goldman' global head of commodities research, Jeffrey Currie, increased his price projections for gold to $1,425 per ounce over the next 12 months. Currie expects gold to rise to $1,325 per ounce in three months, and $1,375 in six months before reaching his final 2019 target of $1,425 per ounce. This price forecast for gold implies an upside of roughly 10% from current price levels.

Currie has based his expectations for gold prices to be supported by rising demand for defensive assets in the market. Currie also says that growing geopolitical tensions will probably incentivize central banks to take larger positions in the gold market.

Source: Thomson/Reuters Analyst Surveys

In January, CIBC also increased its price target for gold. According to a recent note, the bank’s 2019 forecasts were raised from $1,300 per ounce to $1,350 per ounce at year-end. For 2020, the bank’s forecast is even greater at $1,400 per ounce.

CIBC has also changed its forecasts for the gold mining stocks, which indicates a changing stance for the industry as a whole. CIBC’s top stock picks in the precious metals mining sector are: Wheaton Precious Metals  (WPM), Barrick Gold  (GOLD), Agnico Eagle Mines  (AEM) and Franco-Nevada  (FNV).

Another recent gold bull is Societe Generale, and the firm has given several reasons for its positive stance on gold and silver. One reason is the potential for a short-covering of downside stock trades by money managers. Societe Generale has explained that market volatility and worries about a coming recession might bring some investors out of stock market positions and towards gold. In the next six months, Societe Generale has a price target for gold of $1,300 per ounce and $1,375 per ounce for the next 12 months.

Einhorn and Gundlach are Betting Big on Gold

Jeffrey Gundlach, the CEO of DoubleLine Capital and the market’s so-called “bond king,” believes that commodities will benefit this year from the market’s economics. He has also said, “To be aggressive, you could buy the VanEck Vectors Gold Miners fund  (GDX). It is a leveraged play on the price of gold. That is what I recommend.” Gundlach has also explained that he likes gold based on the strong possibility of a weaker US dollar.

David Einhorn, CEO of Greenlight Capital, is another gold bull who uses precious metals as a hedge. In a letter to shareholders, Einhorn explained that he uses precious metals as a hedge against “imprudent” global fiscal policies. Einhorn is also worried about the US debt reaching new all-time limits, saying, “When the economy eventually slows, the deficit is sure to expand rapidly.”

Sam Zell: First-time Gold Buyer

Sam Zell, founder of Equity Group Investments, recently bought gold for the first time. After the decision, he explained: “For the first time in my life, I bought gold because it is a good hedge.” Zell added, “Supply is shrinking and that is going to have a positive impact on the price.”

Maybe these changes of heart should not be surprising but the market is clearly starting to mimic the bull trend in platinum prices that has been in place for almost two decades. In addition to this, gold miners have been more focused on mergers and acquisitions that will enable their businesses to grow. Since this growth is not exactly happening organically, this could keep supplies of gold in check.

Should You Keep Gold in Your Portfolio?

Ray Dalio, founder of Bridgewater Associates, recommends investors keep at least 5%–10% of their investment portfolio devoted to gold. Will this approach benefit if gold rises on concerns for a soft economic start to 2019? Gold prices did start this year on a soft note because stock markets recovered quite remarkably after a dismal fourth quarter.

Click to enlarge

Source: Bridgewater Associates

Two important factors were responsible for this change in the investment community:

  • Federal Reserve’s changes in its rate hike stance
  • Broader optimism for progress in US-China trade talks

Meanwhile, gold prices held at weak levels as traders flocked toward riskier assets and ignored safe-havens like gold. Sentiment, however, seems to be turning once again.

Gold’s Safe-Haven Allure is Rising Again

As highlighted previously, weaker-than-expected financial reports out of Europe raised worries that a global slowdown is afoot. On March 22nd, the yield curve in Treasurys turned negative with the ten-year yield dropping under the three-month yield. This is the first time this has happened since 2007.

While worries about a global slowdown weighed on the yields toward the long end of the Treasury yield curve, the recent dovish outlook from the Federal Reserve increased the possibility of a rate cut. This put downward pressure on the short-term yield curve. These economic worries have increased safe-haven bids for gold, and the yellow metal has gained 3.0% year-to-date.

Click to enlarge

Source: Fed Funds Rate

Even still, silver and gold have underperformed the stock markets this year, with the S&P 500, the NASDAQ Composite Index, and the Dow Jones Industrial Average gaining 11.7%, 15.5%, and 9.4%, respectively. The market’s major drivers for silver and gold in 2019 could be the Fed’s changing tone and investor sentiment with respect to global slowdown worries. If those slowdown worries continue to deepen and the yield curve stays inverted for a long time, the market’s demand for gold should increase. The Fed’s dovish statements and no-rate-hike decisions have provided a positive macro backdrop for both gold and silver.

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DISCLOSURE: As of writing, the author has long positions in gold and platinum.


The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

Companies

Symbol Name Price Change % Volume
AEM Agnico Eagle Mines Limited 60.35 0.00 0.00 1,127,537 Trade
GS Goldman Sachs Group Inc. (The) 249.46 -0.26 -0.10 3,108,371 Trade
FNV Franco-Nevada Corporation 105.63 0.25 0.24 697,481 Trade
GDX VanEck Vectors Gold Miners ETF 28.42 -0.25 -0.87 43,853,776
wpm Wheaton Precious Metals Corp (Canada)

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