Gold prices are currently down and out. But it’s highly unlikely that this will remain the case for a very long time. Don’t be shocked if we see a solid move to the upside in the near future.
There are three developments that gold investors should be watching very closely. They have potential of sending precious metal prices soaring to their 2011 highs; to $1,900, or even higher.
Volatility Shooting Through the Roof; Will Gold Prices Rise With It?
Before going into the details, please look at the long-term chart below of Chicago Board Options Exchange (CBOE) Volatility Index (VIX). It is also called the “fear index” of the stock market. Pay close attention to the circled areas.
Chart courtesy of www.StockCharts.com
Notice something interesting? There’s a massive spike in volatility in the stock market. In other words, fear among equity investors is increasing. With this said, I ask the question; will they seek the safety of gold? It will not be surprising to see a flight towards safety. Gold does great job providing safety when other asset classes are scrutinized.
China Crisis Picking Up Speed; Uncertainty Skyrocketing
Too many investors are still ignoring China. The second-biggest economy is in trouble no matter how you look at it. Just recently, the country revised its 2014 growth rate lower. When we look at the forecasts, they aren’t impressive whatsoever. In 2015, the Chinese economy is expected to grow 6.8% and then slow down to 6.3% in 2016. Mind you; these estimates are by the International Monetary Fund (IMF). (Source: International Monetary Fund, last accessed September 9, 2015.)
Why does the Chinese economy matter?
You see, troubles brewing in the Chinese economy will send waves of uncertainty to the global economy. In the recent past, we have seen how investors across the globe panicked and sold all because of troublesome news out of the Chinese economy. If this continues, don’t rule out investors rushing towards the yellow metal.
Also, there are wild speculations that the central bank of China may be printing publicly as well. If this actually happens, it will only help gold prices rise higher.
Currency Wars Could Be Ahead; Gold Could Be Very Helpful
As it stands, if you pay attention to the foreign exchange market, there are wild fluctuations in currencies. And countries are prepping themselves for it.
Not too long ago, the Chinese central bank devalued its currency. This has caused the value of other currencies to rise. In order to stay competitive, we are hearing central banks contemplating on lowering their interest rates or outright devaluing their currency. Mark my words; this may become the new norm. Currency wars could very well be ahead, if it isn’t happening already.
Remember this; gold bullion could be very helpful when currencies’ values are plunging. Also, this could send central banks on a bigger buying spree because gold helps them stabilize their foreign reserves.
Why Gold Could Hit $1,900 Soon
Dear reader, all the stars are lining up perfectly for higher gold prices ahead. I have mentioned how the supply and demand situation is completely distorted. The factors mentioned above also make a bullish case for the precious metal.
I remain bullish despite all the negativity towards the metal. Going into 2016, I am very optimistic. I will not be shocked to see if gold prices hit $1,900 by next year.
With all this said, gold mining companies are looking very attractive.
Also Read: Gold Prices in 2016 to Remain Bullish