Gold investors are grappling with the tricky question of whether the current price rally will be followed by another, or if this is merely the peak of an upward trend. However, according to a recent report by Citigroup analysts, the future of gold price development looks healthy, and they anticipate that the price of gold will rise to over $2000 per ounce in the next two years. This topic is discussed by Haris Anwar in an article on Investing.com, from which this text is a direct translation.
Investing in gold is strongly tied to the surrounding economic situation. Gold reached its highest price peak in six years in September, as central banks globally eased their monetary policies to counteract the economic slowdown caused by the trade war between China and the USA.
Events from the previous six months have supported the price increase of gold, known as a safe haven during economic turbulence. The trade war between the USA and China deepened, the European economy slowed, Brexit became even more confusing, and tensions in the Middle East escalated following attacks on Saudi Arabia's oil production.
These setbacks in the macroeconomy increased the likelihood of a recession and forced the US central bank, the Fed, to lower interest rates. The Fed acted afterward and reduced the loan rate by a quarter of a percent to 2%. on September 18.
Encouraged by these signals, gold investors shifted cash into gold and silver mining stocks, significantly raising the prices of mining stocks. BlackRock's iShares MSCI Global Gold Miners (NASDAQ:RING) has risen nearly 14% since August, more than any unleveraged equity fund in the USA, as Bloomberg's data below shows.
Is the price of gold now at a record high?
However, gold investors are grappling with the tricky question of whether this price rally will be followed by another rally, or if it is merely the peak of an upward trend. According to a recent report by Citigroup analysts, the future of gold price development looks healthy, and they anticipate the price of gold to rise to over $2000 per ounce in the next two years.
According to analysts, the ongoing price rally is supported by the prevailing risk of a global recession and the likelihood that the Fed will lower the U.S. interest rate to zero.
“We expect gold to maintain its strong spot price for a longer period and possibly exceed $2,000 per ounce, forming new peaks at some point in the next year or two.,”
they said. If this predicted level is reached, it would surpass the $1,921.17 mark achieved in 2011.
But the risks of this bullish scenario are also significant. Both the U.S. and China will return to the negotiating table in October, and the markets will revert to their usual state, hopefully awaiting a resolution to the disagreements.
On the economic front, the U.S. economy continues to show signs of strengthening, supported by strong growth in consumption and new jobs. For this reason, the Fed failed to communicate that further rate cuts would be forthcoming. The opinions among FOMC (Federal Open Market Committee) members are divided on the need for additional cuts; some believe that the recent rate cut was too large.
Which gold stocks to buy
In this highly uncertain economic climate, it is likely not a bad idea to hold some gold in your portfolio. If the gold price rally continues, gold mines that have made cuts to costs and capital expenditures in recent years appear to benefit the most, making them an attractive option for any long-term investment portfolio.
We particularly like Newmont Goldcorp (NYSE:NEM) which is now the world's largest gold mine, and the Canadian producer Barrick Gold (NYSE:GOLD). These producers have gone through tough lessons from previous peaks in precious metal prices.
The peak spot price of gold at $1,921.17 was reached in 2011, but the price increase quickly faded as historically low interest rates from central banks and quantitative easing supported the rise of stock markets and accelerated economic growth. By the end of 2015, prices had collapsed by about 45%.
Now that the trend is rising again, several mining companies are seeking safe organic growth and optimizing their existing production factors. Many mines have undergone prolonged cost-cutting measures, paid off debts, and supported productivity growth to attract investors back after the previous downturn.
Newmont's shares, currently trading at $39.30, have risen 14% this year, while Barrick Gold's value has increased by as much as 38% to $18.17.
Summary
Investing in gold-related stocks such as BlackRock’s Gold Miners ETF or major gold mining companies is risky, as market dynamics are contradictory and can push the price of gold in one direction or another. However, gold's safe-haven status still exists and can provide excellent protection as other asset classes weaken.
In an uncertain economic situation, precious metals offer a practical way to share risk and increase protection in one's portfolio.
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This article is a direct translation of the original English article on Investing.com dated 20.0.2019/Haris Anwar: https://www.investing.com/analysis/safehaven-gold-time-to-take-profit-or-add-to-your-portfolio-200466431
