Free Falling Turkish Lira Could Boost Gold Prices
If you are trying to figure out where gold prices could be headed next, think globally. Understand this: gold is a global phenomenon and gold prices are impacted by global events.
Currently, there are certain events taking place that could increase the demand for gold. As a result, gold prices could soar.
Look at what’s happening in Turkey.
As it stands, the Turkish lira has been in a free fall. The currency has declined 17% year-to-date against the U.S. dollar. It’s one of the worst-performing currencies in the world. Inflation in the country is surging.
To give you some perspective on how bad the situation is in Turkey, a broker in the country, Alnus Yatirim, wrote in its note to clients, “God help Turkey.” (Source: “‘God Help Turkey,’ Says Brokerage as Lira Goes Into Meltdown,” Bloomberg, May 21, 2018.)
Why does Turkey matter? Don’t forget, Turkey has an appetite for gold.
Between 2016 and 2017, gold coin and bar demand in the country increased by 78%. Between the fourth quarter of 2017 and the first quarter of 2018, gold coin and bar demand soared 47% in the country. (Source: “Gold Demand Trends Q1 2018,” World Gold Council, May 3, 2018.)
Not only this, the Turkish central bank has been a very active gold buyer lately.
With the lira falling in value, what do you think Turkish investors will do? They could seek safety with gold. This would give a boost to gold demand. As the Turkish currency has dropped 17% year-to-date, gold prices in lira terms have increased roughly 18%. Investors in the country would be better off holding gold.
Will the Turkish central bank buy more gold to stabilize Turkey’s currency? It’s possible.
As I said earlier, this could boost gold demand, which would be great for gold prices.
Indian Rupee Falling, Indian Investors Could Buy a Lot More Gold
Look at India as well; there’s something similar happening in that country.
The Indian rupee has been losing value. It has declined roughly seven percent against the U.S. dollar, for example. The worst part is that it could still go lower.
India has an enormous hunger for gold, regardless of what happens to the country’s currency. One has to wonder what will happen as the currency declines. Will Indian investors rush to buy gold? It’s likely.
In the entire year of 2017, gold coin and bar demand in India amounted to 164.2 tonnes. In the first quarter of 2018, demand was 27.9 tonnes.
Gold Prices Outlook: Don’t Rule Out $2,000 Gold Just Yet
Dear reader, as I see it, the stage is set for higher gold prices.
The fundamentals of the gold market are nothing but solid. We have a simple economic problem at hand; the supply side is struggling while the demand side remains strong and could increase. This is a perfect recipe for higher gold prices.
How high could gold prices go? In the long term, don’t rule out $2,000 gold just yet.
Recently, gold prices broke below $1,300. All of a sudden, we were hearing a lot of bears calling gold a bad investment. I think the yellow precious metal is presenting a great opportunity at the current prices. It could be trading for valuations too low to ignore.