3 Reasons to Be Bullish on Gold Prices
Gold prices are up by more than 20% year-to-date, but the gain for gold bullion could be just getting started.
There are three events that every gold investor should pay attention to, because they have the ability to cause a super spike in gold prices.
On June 23, Britain will be voting on whether the country should leave the European Union (EU) or stay.
As it stands, it looks like the “Leave the EU” movement is surging. According to the Opinium Poll, commissioned by the Brexit-backing think tank Bruges Group, 52% of the respondents said they would prefer to leave the EU. Only 33% said they would want to stay. (Source: “End of EU rule FINALLY in sight: Leave camp take 19-POINT lead as Britons flock to Brexit,” Express, June 13, 2016.)
If Britain does vote to revoke its EU membership, this could cause a significant amount of uncertainty. Britain is a major financial and economic hub in Europe. All of a sudden, a lot of factors will become questionable.
However, this could all be great for gold prices. Investors may end up running toward the yellow shiny metal to secure their wealth.
Federal Reserve’s Interest Rate Decision
Not too long ago, the Federal Reserve was adamant that it would continue to raise its federal funds rate after having raised it for the first time in nearly a decade in December 2015.
Now, the situation looks completely different. A rate hike doesn’t look like a very viable option. At the time of this writing, odds of a rate hike in June sit at just two percent. The odds of a hike in February of 2017, however, are sitting at 60%. (Source: “Countdown to the FOMC,” CME Group, last accessed June 13, 2016.) And if you’re a Fed watcher, you will know these odds could decline further.
With this, know that one of the only reasons investors were selling gold was because the Federal Reserve was going to raise rates. Now, when it can’t, won’t investors jump to buy gold again? As I see it, yes, and they could send gold prices soaring.
Negative Yields on Bonds
If you follow the bond market, you may know this already: a significant portion of global government debt is selling at a negative yield.
Japanese government bonds with maturities of two years, five years, and 10 years have negative yields.
German government bonds with maturities of two years and five years have negative yields, and the 10-year German Bund is very close to yielding a negative return, too!
This means that if you buy these bonds and keep them until maturity, you are guaranteed to lose money.
Don’t be shocked if investors ditch bonds and turn to assets that store value. Gold does a great job at it.
Gold Prices Outlook for 2016
Here’s something that usually is forgotten; despite gold being an important asset, the gold market is relatively small compared to the stock market or the bond market.
So, a relatively small amount of money could cause gold prices to soar significantly.
This statement may sound very bold, but if all the events mentioned here come into play, gold prices could easily see the $1,500 level by the end of 2016.