Sentiment Turning, Gold Prices Could Register Solid Gains in 2019
Those with a lot of money are turning bullish on gold. This could have very positive impacts on gold prices in 2019 and beyond.
You see, in recent years, institutional money didn’t really care about the yellow precious metal. Across the board, the sentiment toward gold was very similar: it’s a useless asset that won’t add much value to a portfolio.
As a result, institutional investors never bought in, and we saw the price of gold remain stagnant. Keep in mind that institutional investors have a lot of money. They can move markets up or down.
Now it seems like sentiment is turning. At the very least, the tone is changing.
Here at Lombardi Letter, we have presented a lot of evidence that big banks have been signaling that gold is worth a look.
We have seen major banks like Bank of America Corp (NYSE:BAC), Goldman Sachs Group Inc (NYSE:GS), and Bank of Montreal (NYSE:BMO) say that gold prices could move higher in 2019 and beyond.
Now, institutional investors are also favoring gold—even talking about allocating significant amounts of capital toward it. This is the first time in several years that we have been hearing something like this.
Russ Koesterich, portfolio manager at BlackRock Global Allocation Fund, Inc, said, “We’re constructive on gold.” He added, “We think it’s going to be a valuable portfolio hedge. We’re multi-asset investors: we think about its effect on the entire portfolio, and what we see value in right now is gold’s value as a diversifier.” (Source: “BlackRock Heaps Praise on Gold’s Role as a Tough Year Opens,” Bloomberg, January 6, 2019.)
Mind you, BlackRock Global Allocation Fund has $60.0 billion under management. If we assume that the fund allocates just 10% of its portfolio to gold, that’s $600.0 million.
This sum may not sound much, but don’t forget that the gold market is fairly small, relative to the stock market and the bond market. That amount of money could make an impact on the gold market.
What’s Next for Gold Prices in 2019?
Dear reader, the case for higher gold prices is getting stronger by the day.
The decline in the price of gold between 2013 and 2015 was nothing but a blessing in disguise for those who never bought the yellow precious metal.
In the midst of the sell-off, the fundamentals of the gold market changed too.
Mark my words: if institutional money comes in to buy gold, we could see a shortage-like scenario in no time. Over the past few years, demand has been solid from central banks and consumers, while the supply side has faced a lot of problems.
I will end with this: don’t be shocked if 2019 becomes a stellar year for gold.
On the upside, $1,375 is the gold price level to watch. If that level is taken out (it has acted as a resistance level for several years), we could see fireworks, to say the least. The next resistance level for gold prices isn’t until $1,550.
In the meantime, gold miners shouldn’t be ignored. If the price of gold makes a run for $1,375 (or even $1,550) in 2019, certain gold mining stocks could double in value (if not more).