Gold to Soar Above $6,000

Thursday, August 16, 2018
By Paul Martin

By: Przemyslaw Radomski, CFA
GoldSeek.com
Thursday, 16 August 2018

In our regular gold trading alerts, we focus on the short- and medium-term outlook and we rarely discuss the very long-term issues or price targets. The reason is simple – the long-term issues and price targets don’t change often, so usually there’s little new to say about them. Consequently, it’s been a long time since we last discussed our view on gold’s explosive upside potential. In fact, it’s been so long that those who do not take the time to read our analyses thoroughly and those who have been reading them for only a short while may think that we are bearish on gold in the long run. Or that we’re perma-bears. Naturally, it’s nonsense and those who have been diligently following our articles know it. What we’re aiming for is to help investors position themselves to make the most of the upcoming rally in the precious metals market and one of the best ways to do it is to help people prepare for the final bottom in gold.

Of course, buying close to the bottom is pointless unless a big rally is going to follow. In today’s analysis we want to tell you how big this rally is likely to be. Well, you have already read it in the title of this article, but the key question is if the above is just a simple round number that we “wish” gold to reach, or if it is based on reasonable arguments. We don’t want you to take our word for it – we’ll show you how we arrived at $6,000 as the minimum target for gold.

But first, we would like to discuss a few reasons that could help to push gold well above the previous highs.

Dollargeddon

The medium-term outlook for gold is very bearish based on multiple technical developments and we discussed it thoroughly on Monday. Even based on some of the fundamental factors, one can expect a decline or a continuation in the sideways trend. Why? Well, there is acceleration in global economic growth combined with still subdued inflation. Hence, U.S. real interest rates (especially short yields) should steadily rise. Another reason is that the U.S. economy (and the overall economy) is less fragile than the euro area, so there are more downside risks related to the euro than to the greenback.

However, gold prices are likely to go up in the coming years, as there are many potential triggers which are likely to support the yellow metal’s performance in the long run. We’ll briefly discuss the most important factors below:

1. Synchronized global growth and the narrowing divergence between the U.S. economy (the key economy using the U.S. dollar) and other major economies, particularly the euro area (see the chart below). Hence, in the long run (!), we expect downward pressure on the greenback from the euro. In other words, the U.S. is in a later stage of the business cycle than the euro area – hence, the latter may now relatively improve its position or even outperform the former economy. If this happens, we will see the appreciation of the euro against the U.S. dollar, which should be bullish for gold.

Again, we are not discussing the medium-term outlook here, which remains very bullish for the USD. We mean the very long term and the outlook in terms of years (not necessarily this and the next year, though).

The Rest…HERE

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