Don’t Lose Sight of Gold Prices Just Yet
If you are losing hope on gold prices, know this: big banks and those with money are starting to side with the yellow precious metal. This could have very positive implications on gold prices in the coming year.
Take JPMorgan Chase & Co. (NYSE:JPM), for example.
The bank’s current recommendation on gold is to short it. But JPMorgan also said, “Precious metals prices should stabilize mid-year and move higher into 2H on the assumption that given the aging US cycle the US economy might become increasingly vulnerable to further rate hikes ultimately pressuring real rates lower as the Fed potentially takes a pause.” (Source: “Gold’s Time To Shine Will Be At The End Of 2018 – JP Morgan,” Kitco, December 4, 2017.)
The bank expects gold prices to be more than $1,300 in the second half of 2018.
Keep in mind, JPMorgan isn’t the only bank with an optimistic view on gold prices for 2018. Several others have said similar, and the list of bullish banks continues to get bigger.
Why do big banks matter when it comes to the gold market? You see, they are followed closely by those with money. Back in 2013, when gold prices witnessed a rigorous sell-off, it was mainly due to banks turning bearish on the precious metal and investors following their lead.
Those With Deep Pockets Starting to Buy Gold and Reduce Their Bearish Bets
Now, you must ask: Will money managers listen to banks as they start to turn bullish on gold? We already see that those with deep pockets are starting to listen. One place we see this is in the Commitments of Traders (COT) report released on a weekly basis by the U.S. Commodity Futures Trading Commission (CFTC).
In this report, the CFTC reports long and short positions of “managed money.” That is essentially institutional investors. Digging deeper, as of November 28, managed money was short on 9,978 futures contracts of gold. (Source: “Commitments of Traders,” U.S. Commodity Futures Trading Commission, last accessed December 6, 2017.)
What does this mean? Each futures contract amounts to 100 ounces of gold. So, the institutional investors were short on around one million ounces of gold.
In the beginning of 2017, this figure was 91,229. In other words, institutions have reduced their short exposure to gold by over 89%!
Are the institutional investors turning bullish on gold? In one word, yes. In the beginning of 2017, their long exposure amounted to 127,786 futures contracts. Now this figure is at 208,518 futures contracts. This represents an increase of 63%.
Gold Prices Outlook for 2018: Yellow Precious Metal Could Really Shine
Dear reader, the mainstream media may have you convinced that stock markets are going to soar and that phenomena like Bitcoin are worth a look. Don’t get too riled up by the noise.
Those who ditched the gold market are coming back to it. Big banks turning optimistic could give a boost to institutional investors’ confidence further. So, more could be buying. Gold prices are stable, and being up for the last two years could really make a strong case to buy.
Next year, we could see gold prices really shine. The yellow metal has been ignored for way too long for all the wrong reasons. In 2018, it could be making a solid run toward $2,000.