Gold Prices to Range from $1,200 to $1,400 in the Next Six Months
The gold price on the eve of a much-anticipated meeting between President Donald Trump and his Russian counterpart Vladimir Putin is $1,225 per ounce (about 28 grams). Gold prices have fallen by some $15.00 since last May. Silver, too, encountered a slide and its prices also fell. Its decline was even stronger than gold’s.
As the analysis below suggests, prices should bounce back to $1,300 or higher within the next few months, if not weeks. But conditions are such that the gold price per ounce could even reach and exceed $1,400.
Gold price predictions are harder than those of other assets. Stocks offer more predictive tools such as sales and earnings forecasts or guidance. But gold has become such a safe-haven asset that it fluctuates on unpredictability. Unforeseeable events are what make gold move higher or lower in the price charts. Monetary policies and central bank interest rates do the rest.
But even well-known monetary policy tools fail to deliver the expected results. That happens when macroeconomic and political risks are especially strong. Those wondering what the gold price forecast for the next six months might look like must first consider two overall factors. Where is the gold price per ounce going now that the Fed has confirmed plans to raise interest rates, and which macro level factors could offset the expected results?
Since 2016, forecasts for gold prices have been less than accurate. Many gold price predictions have differed considerably from one to the other. But they have all revolved around the key issue of interest rates.
An Undulating Trend
Since January to the present, the price of gold has followed a somewhat undulating trend, which has often made it difficult to formulate 2017 forecasts. After starting the year just above $1,100, the price jumped over $1,254. In March, there was the first collapse under $1,200, then gold went closer to $1,300, dropping to the present level.
Yet, given the sustained Federal Reserve interest rate increases, the volatility of gold prices has been surprising. According to the standard formula, the U.S. dollar should have moved higher and gold should have dropped steadily. Instead, neither one has fluctuated according to the set patterns. The dollar has weakened and gold is higher now than it was in January, when the Fed had not yet announced the next interest rate hike.
At the latest Fed meeting in June, Fed Chair Janet Yellen decided to raise interest rates. But, gold prices are still comfortably above $1,200 per ounce. The higher interest rates are supposed to reflect an economic recovery, thus, assets such as gold and silver should by no means be attractive to investors. Moreover, the Fed has made it clear that it intends to raise interest rates again in 2017 and 2018. This adds further turbulence ahead of rising gold price prospects.
Short-Term Optimism Is Short-Sighted
In the short term, optimism and economic improvement should lead to a scenario where investors shift from safe-haven assets like gold to riskier ones. As a result, the gold price will slip, at least in the short term, to the recent threshold of about $1,200. But that’s all in theory. Indeed, there could be a major stock market crash in the next few weeks.
The tech stocks that have driven the market rally are due for a major correction. This is not because of charts or technical analysis. It’s because the real economy and the financial one are on separate paths; Wall Street and Main Street have nothing in common. Thus, while June has proven volatile, gold prices will soon resume a long-term bullish path.
The decline on Wall Street has already started. Tesla Inc (NASDAQ:TSLA) stock was one of the top gainers of 2017, reaching above $380.00/share on June 23. As of July 6, it was trading at $308.00/share. That’s a 20% drop in a matter of two weeks! Investors could detect similar patterns, perhaps not as dramatic, in other big name tech stocks.
Yet, a closer look at what has been gaining suggests the risks that are building. Defense stocks retain their gains and they’re at record highs. That’s because, unlike the “Russian meddling” mantras chanted by CNN and the mainstream media, President Trump has not improved ties with Russia at all. U.S.-Russian relations are in terrible shape. Meanwhile, the risk of military confrontation has increased.
Meanwhile, the G20 meeting has not started on the right tone. Trump has turned the screws on Russia tighter, fomenting Polish nationalism and selling them “Patriot” missiles. It’s easy to expect the gold price will rising to $1,300 an ounce or higher. The full scope of the political risk that Trump’s presidency has generated is about to become clear as international tensions could produce at least a trade war (with China) or worse, a full-fledged military war with North Korea, Syria, Iran or even Russia.
Political risks have been ignored. Americans typically ignore them and the media isn’t doing them any favors, concentrating on the wrong stories and omitting those that reveal where to look to determine the true risks to investor portfolios, savings, and assets. Too many investors are relying on the chart system.
But charts won’t tell you about the real risks and the real factors driving asset valuations. Short-term-oriented, speculative gold investors currently ignore the fundamental risks. There are huge global risks and Trump has only exacerbated them. He has become Hillary, turning his campaign promises of focusing on America on its head.
Nobody has any idea what he might do in the face of several worsening crises. Three of the strongest crisis signals are coming from the Middle East, North Korea, and the American auto market. Gold prices can change at any time, which is mainly due to short-term speculative gold investors. But for those with a long and deeper view, gold looks to remain the best hedge for equity portfolios.