Trouble in Emerging Markets Says "Get Ready for Higher Gold Prices" Lombardi Letter 2018-08-03 10:38:41 To figure out where gold prices could be headed, it’s important for investors to keep a close watch on emerging economies. They are facing headwinds, and in the midst, we could see gold demand pick up. Commodities,Gold

Trouble in Emerging Markets Says “Get Ready for Higher Gold Prices”

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Get Ready for Higher Gold Prices

Don’t Ignore Emerging Markets When Trying to Figure Out Gold Prices

It’s critical to keep emerging markets in mind when looking at gold prices. In simple words, they have a love affair with gold, unlike the developed countries.

For example, in times of uncertainty, investors in the U.S. generally rush toward the U.S. dollar. Its name is “the greenback” for a reason.


In emerging markets, gold demand tends to pick up in times of uncertainty.

With that said, know that emerging market economies are facing a lot of headwinds these days.

Turkish Lira Plunges Against the U.S. Dollar

Take Turkey, for example. The Turkish lira is plunging in value.

Why? Because the central bank of Turkey hasn’t raised rates as inflation in the country is surging. Also, there are a lot of questions about the independence of the central bank from the government.

As this is happening, the U.S. government has announced some sanctions against the country as well.

All of this is creating panic.

Year-to-date, the Turkish lira has dropped 24% against the U.S. dollar.

With this, one has to wonder, will investors in the country want to hold a currency that’s losing value very quickly? It’s very possible that the crash in the lira causes a gold rush in the country.

Remember, Turkey is an emerging economy and has a massive appetite for gold. It’s not only the consumers in the country that buy gold; the Turkish central bank has been an active gold buyer, too.

But It’s Not Just Turkey Facing Headwinds

Don’t get too fixated on Turkey, either. Other emerging market economies are facing headwinds too.

We are seeing currencies plunge in value. It won’t be shocking to see consumers and investors in those countries running to buy gold.

The Indian rupee is declining against the U.S. dollar. The Pakistan rupee has lost a significant amount of value and could drop even more. The Chinese yuan could come under fire as the trade war between the U.S. and China escalates.

As the U.S. is looking to place sanctions on Iran, the Iranian rial is falling off a cliff. The demand for gold in the country is surging. In the second quarter of 2018, it was the highest in four years. (Source: “Gold Demand Trends Q2 2018,” World Gold Council, August 2, 2018.)

Bold Prediction: Gold Prices Could End 2018 on a Positive Note

Dear reader, it’s comical how gold is ignored these days. Year-to-date, the yellow precious metal has declined over six percent.

Looking at the emerging markets and overall global conditions, I remain bullish on gold.

If we see investors and consumers in the emerging market economies rush to buy gold, we could see a solid move to the upside with gold prices.

In the meantime, for investors looking for trades with massive profits, it may not be a bad idea to pay close attention to mining stocks.

As the price of gold has declined, mining stocks have gotten punished by investors. A lot of them are trading for pennies on the dollar. If gold prices turn and move higher, mining stocks could provide leveraged gains.

I will end with a bold prediction: I will not be shocked if the gold market ends on a positive note in 2018, just like they did in 2016 and 2017. Over the past few years, summer has tended to be a bad time for the precious metal. We could see bullish sentiment build up in the later part of 2018.

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