“Gold may have found its bottom,” we noted in October 2018.
“After plunging for the last six months, this is the longest streak of losses in about 30 years. And while there are those that would tell you, there’s more pain ahead for the commodity, we’re not so sure. In fact, the situation became so overly bearish last month, The Cheap Investor recommended Hecla Mining (HL) at $2.67.”
As it turns out, October did in fact mark the bottom for gold prices.
2018 wasn’t the best year for gold prices.
Throughout the year, we watched gold slip from a lofty high of $1,369 to a low of $1,180.
However, when the Federal Reserve walked back its promise of higher interest rates in 2019, gold exploded to a 10-month high of $1,344, which pretty much recouped the 2018 losses.
In December 2018, the U.S. central bank signaled that, for the time being, it was finished raising interest rates following two aggressive years of hikes. That stands in stark contrast to its forecast for at least two hikes in 2019 and another in 2020.
“In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes,” noted the U.S. central bank.
That “patience” from the Fed is a sizable catalyst for gold prices.
Steadier, short rates “tend to support gold because the metal competes with cash, and the higher yields make cash more attractive. The dollar was up slightly Thursday and is down less than 1% this year. The dollar is holding up well considering the Fed’s more accommodative stance,” said Barron’s.
At the same time, gold is rising on fear.
Uncertainty about trade talks and fears that U.S. markets could be running out of steam are also pushing capital flow into protective assets, such as gold. In addition, the issue with Brexit has the potential to derail Europe’s economy, which has sent quite a few investors into golden safe havens.
“Gold prices continue to charge higher in an environment marked by heightened political uncertainty in the Eurozone, the U.K., and the U.S.,” says Christopher Vecchio, senior currency strategist at DailyFX, as quoted by Kitco.
With fewer interest rate hikes by the Fed and sizable geopolitical headwinds, we wouldn’t be surprised to see gold prices challenge $1,400.
We’re as confident with a $1,400 forecast as we were calling the bottom in gold in October 2018. Follow us in The Cheap Investor. to see if we’re right again.