3 Reasons to Remain Bullish on Gold Prices
Despite all the negativity, gold prices continue to trend higher. Expect more upside ahead in 2016. The yellow precious metal is setting up to reward investors big time.
There are three things you have to keep in mind when looking at the gold market: higher prices could attract more investors, demand already remains solid and could increase, and the supply side remains constrained.
Let me explain…
Before going into any details, please look at the chart below:
Chart courtesy of www.StockCharts.com
Looking at the chart above, I ask one question: won’t those who have sold their gold bullion want to come back? The yellow precious metal has seen one of the best runs to the upside in the past several years. As I see it, at the very least, it will intrigue them.
Secondly, don’t ignore the demand figures. It’s been mentioned over and over again in these pages how central banks, India, and China continue to buy. Sales at mints across the globe are soaring, too.
I could also see more buyers coming in.
Here’s what you have to know: over the past few years, gold prices took a hit because investors believed that as interest rates go up, the yellow metal isn’t worth owning.
The Federal Reserve did hike interest rates in December. If the mainstream thesis held true, gold would have been down big time. Instead, we saw the complete opposite happen.
Going forward, it’s very questionable if interest rates will increase any further. One of the biggest reasons behind this was the recent jobs market data for May. The U.S. economy added the least amount of jobs in at least five years—a major indicator that suggests the economy is performing poorly.
Now, for those who sold gold on the idea that interest rates will go up and gold will be “a slam-dunk sale,” their whole argument has been thrown out the window. It won’t be shocking to see their sentiment change, and they could be buyers also.
When looking at the supply side, gold prices are still not high enough for producers to flood the market.
Surely, major producers like Barrick Gold Corporation (NYSE:ABX) and Goldcorp Inc. (NYSE:GG) are producing for less than the current gold prices. But, many other gold producers still can’t be profitable and have free cash flow.
Also, exploration and capital expenditure is severely down, meaning future production could take a big hit. Don’t take this lightly whatsoever.
Long-Term Gold Prices Outlook
Odds of major upside in gold prices are increasing by the day. You could lose on big gains if you are bearish towards the precious metal.
As I have said before and as I will say again, 2016 could be the year when gold prices start to make another bull run like they did back in 2002. I am still not ruling out gold $2,000 in the next few years.
Also, I am focused on gold mining companies. Not all of them are going to provide massive returns, but there are few I could see doubling, tripling, or more if gold prices see an increase of 20% to 30%.