Big Banks Making Bullish Case for Stronger Gold Prices
It wasn’t long ago that big banks around the world were bearish on gold prices. Now, their sentiment toward the yellow precious metal is changing.
Bank of Montreal‘s (NYSE:BMO) BMO Capital Markets subsidiary recently said, “We believe gold has moved into a new range, and while much of the recent monetary policy shift was priced in very quickly, we believe asset allocation flows will continue to offer near-term support.”
Bank of Montreal also said something that the readers of this publication likely know well: “However, with a trend towards central-bank de-dollarization accelerating and ongoing annuity demand from ETF flows, we are certainly in a precious-positive environment, and one which should be supportive of gold pricing and gold equities, particularly as the gold price in many producer currencies looks extremely strong.” (Source: “BMO: Macro Backdrop To Keep Gold In Higher Range; $1,380 Forecast For 3Q,” Kitco News, June 27, 2019.)
Bank of Nova Scotia (NYSE:BNS) commodity strategist Nicky Shiels said in a note, “There’s an extraordinary amount of $1,400 strike (vol) owners. Overall, there is a growing ‘FOMO risk,’ where gold could attract more buyers at $1,400 than $1,300, reaffirming the belief of some well-known investors that if $1,400 breaks, $1,700 (somewhat of a stretch) will happen ‘very quickly.’” (Source: “Gold Could Have More Buyers At $1,400 Than At $1,300 – Scotiabank,” Kitco News, June 23, 2019.)
Mind you, these are just two recent examples of big banks turning bullish on gold. The list of banks that are bullish on gold now is big, and is getting bigger. It has been documented in this publication several times.
Even the bank that called gold a “slam dunk sell” now has a positive view of gold prices.
Here’s Why There Could Be Fireworks in Gold Market
Why bother paying attention to these big banks?
Here’s the thing: big banks have a massive following among institutional investors.
Back in 2013, it was the big banks that had bearish calls on gold prices, which led to investors selling the precious metal.
If big banks are turning bullish now—surely late, but better late than never—it’s possible that institutional investors will buy more gold.
You also have to remember that the gold market is very small when compared to the stock market or the bond market. You don’t need a lot of money coming in to move gold prices higher.
So, if institutional investors jump in, we could see a spike in gold prices.
And there’s one more thing you need to know: there’s a possibility of seeing fireworks in the gold market.
What do I mean by this? There’s a disparity in the gold market. Demand for the precious metal is strong, while the supply side has faced a lot of headwinds since 2013.
If gold prices move higher, it wouldn’t be shocking to see investors rushing to buy physical gold. I question what will happen when investors find out there isn’t a lot of gold out there for them to buy.
In the midst of all this, I am paying very close attention to gold mining companies. Since the beginning of 2019, mining stocks have seen a healthy move to the upside, but they still present a great opportunity.