If you want to know where gold prices are headed, then pay attention to the central banks. Their actions and policies could send the precious metal soaring to $2,500 an ounce (or more), sooner rather than later.
Central banks around the world are in a very deadly race. It’s a race where eventually everybody loses and gold wins.
The “race” I’m talking about is the rush for central banks to devalue their currencies. Central banks are convinced that a lower-priced currency will bring economic growth. To achieve their goal of a depreciated currency, they are keeping their interest rates low while some central banks continue to print money to suppress their currencies.
And it’s not just the major central banks that are doing this. Smaller central banks are following in the footsteps of the bigger ones.
As an example, the governor of the Norwegian central bank recently said, “Our goal is not to be steering the crown, but of supporting currency weakness.” He added, “We have room to manoeuvre in monetary policy.” (Source: “Norway’s central bank governor says currency weakness still key,” Reuters, September 28, 2016.)
This sentiment prevails across the board.
You also need to know that as central banks work to devalue their currencies, they are buying gold. (How contradictory is that?) In the first half of 2016, world central banks purchased 185.1 tonnes of gold bullion for their reserves. The second quarter of 2016 marked the 22nd consecutive quarter in which central banks purchased gold for their reserves! (Source: “Gold Demand Trends Q2 2016,” World Gold Council, August 11, 2016.)
According to the Official Monetary and Financial Institutions Forum (OMFIF), central banks have added 2,800 tonnes of gold to their reserves since 2008; the most since the period of 1950 to 1965. In that period, central banks accumulated 7,000 tonnes of gold for their reserves. (Source: “Central banks boost gold reserves as low interest rates bite,” The Guardian, September 19, 2016.)
Long-Term Gold Prices Outlook
Dear reader, as far as I see it, gold prices are setting up to skyrocket. And central banks could help big-time in driving gold prices higher.
Year-to-date, gold prices are up 24%. And in the first quarter of 2016, we saw the precious metal show one of its best performances in 35 years. What does this say? It says we are starting to see interest in gold.
As central banks continue to print money without remorse, and keep easy monetary policies in place, investors will find that they need the metal to protect their wealth, and those investors will run toward it.
With all this in mind, I continue to pay very close attention to the mining sector. With gold prices increasing 24% so far this year, a few of the gold mining companies I follow have more than doubled in value. If gold prices do hit the $2,500 an ounce mark as I expect, you could see substantial gains with the shares of quality gold mining companies.