More Upside for Gold Bullion?
The shiny metal might not look that attractive right now since the gold price has dropped as much as 5.6% so far in May. But for the gold bulls out there, here is some good news: one of the most widely followed analysts just said that gold bullion could go to above $1,900 an ounce.
Peter Boockvar is the chief market analyst at The Lindsey Group. On Tuesday, he told CNBC that “this is just the beginning of a new bull market in the metals.” (Source: “Get into Gold Now! Prices Could Hit $1,900: Boockvar,” CNBC, May 24, 2016.)
The analyst believes that gold bullion could not only reach its 2011 highs of around $1,900 per ounce, but it could also go above it.
“In order to be bearish on gold, you have to believe that the Fed is going to embark on 100 to 200 basis points of hikes over the next couple of years, which I think is completely unrealistic,” Boockvar said. (Source: Ibid.)
“This is an ideal opportunity for those who have not gotten in,” he added. (Source: Ibid.)
Note that the analyst’s bullishness on gold prices has come at a time when the Fed could start turning hawkish. According to the minutes of the latest Federal Reserve meeting, an increase in the federal funds rate is a real possibility at the June Federal Open Market Committee meeting. (Source: “Minutes of the Federal Open Market Committee,” Board of Governors of the Federal Reserve System, May 18, 2016.)
However, Boockvar doesn’t believe that the Fed’s decision would affect the gold price that much. He looked back at the mid-2000s, when gold soared from $400.00 to $700.00 despite the Fed raising rates from one percent to five percent. Moreover, he noted that the Bank of Japan recently failed to stabilize its currency with negative interest rates.
Boockvar went on to say that “this was the beginning of the end of central banks’ influence on markets. That’s one thing that was a major factor in the gold bear market that began in 2011: an infatuation of faith in central banks, notably the Fed.” (Source: CNBC, op cit.)
Should you worry about the Fed’s potential rate hike in June? Boockvar’s answer is a solid “no”: “I don’t believe the dollar breaks out higher on another rate hike, and I therefore remain bullish on gold and silver and other commodities.” (Source: Ibid.)
That being said, keep in mind that for the price of an asset to drop from $1,900 to $1,200, it would take a 36.8% decline. But for the price of this asset to go back from $1,200 to $1,900, it would take a 58.3% gain. The gold price would have a long way to go to reach its 2011 high.