Gold Prices Could Hit $2,000 by 2018
Gold prices continue to trend higher. The yellow precious metal is up roughly 28% year-to-date. If you think this is it, you could be making a grave error. Gold bullion could soar even higher.
I have been very adamant in these pages about paying attention to the fundamentals in the gold market. They continue to turn in favor of much higher gold prices ahead.
There are three things you should be paying close attention to and they could be the biggest drivers in the gold market for the next few years.
1. Monetary Policy
Before getting into any details, it should be very clear that gold is a global phenomenon, meaning it moves up or down as conditions in the global economy change.
With that being said, from my perspective, it looks like central banks around the world have come to a consensus about two things: 1) they want to keep interest rates low and 1) they are more than willing to print more money.
Dear reader, this is very dangerous. Low interest rates and increased money printing could create volatility in the currency markets. Gold could become a very useful currency-hedging tool.
2. Consumer & Central Banks’ Demand
Despite gold prices going up 28% year-to-date, we continue to see solid demand from consumers and central banks.
For instance, in the first six months of 2016, the U.S. Mint sold 501,000 ounces of gold in American Eagle coins. In the same period a year ago, this figure was just 386,000 ounces. Simple math will tell you that the demand for gold coins at the U.S. Mint is almost 30% higher in the first half of 2016. (Source: “Bullion Sales/Mintage Figures,” U.S. Mint, last accessed July 11, 2016.)
Central banks’ gold purchases are resilient as well.
The first quarter of 2016 marked the 21st consecutive quarter when central banks added gold to their reserves.
In April and May, we saw them buy more, but it wasn’t by the central banks that already have a lot of gold on hand. Instead, it was the central banks that don’t have gold in countries like China, Russia, Kazakhstan, Philippines, Serbia, Belarus, and several others, that were increasing their buying. (Source: “Changes in World Gold Official Reserves,” World Gold Council, July 7, 2016.)
3. Questionable Future Production
It must be understood that over the past few years, the gold market has taken a major hit. Mining companies have cut back on exploration spending and many have pulled back on their projects.
Exploration spending is essentially a gold mining company’s investment in future production. If a company significantly reduces its exploration, will it be able to produce more in the future? It’s very unlikely.
Also, if a project’s spending has been cut, it doesn’t take a rocket scientist to figure out that it will take longer to bring it to production.
This makes the case for owning gold much stronger. We have increasing demand and very questionable future production.
Gold Prices Outlook for 2016 and Beyond
Year-to-date gold prices haven’t disappointed me whatsoever and I remain optimistic
At this point, with fundamentals improving, I am not ruling out gold prices beyond 2013’s highs—that is, above $1,600 by the year’s end and beyond $2,000 in two to three years.
Again, to take advantage of higher gold bullion prices, pay attention to gold miners. They are going to be the biggest beneficiaries and their stocks could soar big-time.