The stratospheric rise in the price of gold above 2,000 dollars an ounce has almost ceased to be news. In the markets of precious metals, the myth came true.
This brutal invasion of the golden bulls should come as no surprise to anyone who pays attention to the current financial landscape. The Fed has injected an unprecedented amount of new money into the US economy to avoid a collapse from the coronavirus impact. On the other hand, commercial activity has been restricted globally.
The United States Federal Reserve has declared that the stimulus efforts will last for years and is committed to doing whatever it takes to keep the economy afloat. The Federal Reserve’s balance sheet soared from $4 billion before the crisis to $7 billion. This is the highest level on record. Besides, this is before the second round of stimulus, which is currently being negotiated.
The dollar index fell from a high of 103 on March 20 to 94, a significant drop in just a few months to the lowest level since September 2018.
When the money printer goes wild, it is bearish for the dollar and bullish for gold. The precious metal is up more than 25% so far this year.
Mining stocks have generated the best returns in 2020. The VanEck Vectors Gold Miners ETF is up 42%. The Gold Stock Bull portfolio is up 100%. Mining companies see their profit margins increasing faster than the price of gold, often generating leveraged profits.
Could gold reach $7,000 in less than six years?
Jason Hamlin, an investment analyst and founder of Nicoya Research, states that there is much to the upside in the gold rally. He believes that the price is still below the midpoint of the trend channel.
Using the last major bullish cycle in gold as a guide, he forecasts the price to rise to $6,000 by 2026.
Hamlin provides the following average price points for the coming years: January 2021, priced at $2,250 an ounce; January 2023, $3,200; January 2025, the price will amount of $4,600; and by January 2026, it would reach $5,600 per ounce.
At the top of the trend channel, the analysis provides the following price forecasts: January 2021, $2,700 an ounce; January 2023, at $4,000; January 2025 will reach $5,750; and January 2026, at $7,000 an ounce.
On the downside, Hamlin thinks that the Trump administration could show fiscal restraint, and the Fed could raise interest rates and reduce its balance sheet. Perhaps the annual deficit could be reduced, and the debt-to-GDP ratio could fall as the United States shifts to a surplus and repays the debt. But those odds are incredibly slim, the analyst assumes.
COMMENTS