Goldman Sachs’ chief global equities strategist Peter Oppenheimer has cautioned that overzealous investors have “overpriced the ability of the administration to push through some of the things the market is priced for.” He says that a chance of a “correction,” normally defined as a drop of at least 10%, is “quite high.”
This is just one reason why demand for physical gold and silver has been so sustained. In fact, gold hit a new high for 2017 just last week.
Five pillars continue to provide strong support for precious metals:
Stock market bubble
U.S. monetary and economic policy in flux
Rising physical demand for gold
This week’s events are a perfect example. France’s first round presidential election left Europe shaken as the leading candidates emerged. Both represent anti-establishment parties. There is a clear political push towards increased nationalism, closed borders and financial independence underway.
OCBC analyst Barnabas Gan believes that geopolitical tensions could intensify in the near term. Therefore he sees gold prices reaching $1,300 or more.
Just like in the U.S., voters overseas are eager for radical change and willing to support candidates who suggest unorthodox approaches, leading to increased political rancor and conflict.
At the same time, the news cycle is filled with terrorist attacks and increased military action around the globe. North Korea and ISIS make headlines every week now. This is the heart of the geopolitical uncertainty investors feel instinctively today.
Managing director and chief investment officer of Swiss Asia Capital Juerg Kiener is bullish on gold. Kiener’s view is based on an emerging distrust towards U.S. geopolitical behavior and rising physical gold demand around the world. Kiener believes that the driving factor behind precious metals prices is a loss in trust of leadership and governments and financial markets.
Bloomberg Intelligence’s Mike McGlone says there is a case for gold to hit $1,400 an ounce in the near term. He advises that investors consider the bigger picture, noting that gold is behaving just as you would expect based on mounting geopolitical tensions. He expects prices to rise ahead.
Money Morning Resource Specialist Peter Krauth points to two factors that could drive gold prices higher this year: an increasingly unstable stock market and a rising inflation rate.
As of March 2017, the annual inflation rate is at 2.4%, near five-year highs.
According to Krauth, the combination of a volatile stock market and growing inflation concerns could propel gold prices 8.4% higher by the end of 2017.
Gold is the safe haven asset of choice in inflationary times.
U.S. MONETARY POLICY IN FLUX:
DEBT CEILING SCARE
Even though the Federal Reserve is expected to raise rates this summer, it hasn’t make much of a dent in gold’s gradual rise in 2017. That’s because the U.S. dollar is clearly under threat in both the short and long term, and the stock market is a bubble waiting to pop.
The debt ceiling is key to this trend. President Trump has repeatedly stated that defaulting on America’s debt is something he is confortable with, under the right conditions. These could be those days. Our country has passed $20 trillion in debt owed and could begin defaulting on its obligations as early as the fall, unless Congress can raise the ceiling before August.
Despite his best intentions, President Trump’s first 100 days have been marked by big policy misfires and his progress has run afoul of hyper-partisanship and Washington posturing. U.S. Treasury Secretary Mnuchin recently announced that promised tax reform would be delayed.
The windfall profits hoped for with this proposed reform is a big part of what has driven the stock market to bubble territory. But investors can’t wait forever!
Kieron Hodgson, a commodity analyst from Panmure Gordon & Co., lists the following factors to watch as key positives for gold: economic uncertainty (Brexit, French elections, Chinese debt levels), concerns over high stock valuations, central bank gold buying and the pickup in inflation. Hodgson thinks gold investors are likely to benefit from the risks of contagion linked to Brexit and U.S. inflation being pushed up by “Trumponomics”.
DON’T LET SHORT TERM THINKING SPOIL YOUR LONG TERM RETIREMENT PLAN
Short-term dips and market gyrations based on the latest headline should not be your focus if you are a long-term investor. Plan for all-season conditions by investigating strategies for hedging risk and protecting your assets in case of an unforeseen event or catastrophic war.
The big picture today favors a portfolio that is diversified with gold and silver. An allocation of 10-15% in safe-haven assets is something every investor should consider. Owning physical gold and silver in dangerous times just makes sense regardless of ever shifting market conditions or talking heads.
If you think Washington, D.C. can overcome years of partisanship and mistrust, you do not need to own physical gold or silver. If you believe that the risks of war are not that great today, stick with stocks and bonds and do not diversify with precious metals. If you think inflation is never coming back, ignore bullion and invest in paper-based, fiat assets.