Over the past few weeks, gold prices have been under pressure. If you are a gold investor, don’t let this discourage you. And if you are not already into gold, as I will explain below, a great opportunity might be developing for the yellow metal.
I expect short-term volatility for gold prices for the following three reasons:
- Gold prices are up over 20% year-to-date. After such a rally, profit taking is very normal.
- Too many investors have bought into the idea that holding gold is a bad idea when interest rates are rising. And, as it stands, the Federal Reserve is pitching the idea that interest rates will rise soon.
- The mysterious big seller is back. A few days ago, in a matter of minutes, about $5.0 billion worth of gold in the paper market was sold. Those who follow the gold market closely know this “bash gold” game very well. We saw something like this in 2013 when gold prices were being beaten down.
But here’s the great news: if there’s a short-term pullback in gold prices, gold will actually become an even better opportunity than it already is. You have to think long-term with gold prices, as the fundamentals of the gold market remain intact.
The supply and demand situation in the gold market is completely tormented. Demand continues to rise (from central banks and consumers). On the supply side, production is facing headwinds, as there’s not a lot of newly mined gold coming onto the market. In a situation like this, basic economics dictate that gold prices should soar.
Now, let’s assume that the Federal Reserve raises its interest rates in December of this year. What do you think will happen to the markets? The last time the Fed raised interest rates, in late 2015, the stock market plunged and gold prices rose. We could see that happen again.
And remember, the Federal Reserve is the only major central bank in the world that’s talking about raising interest rates. The situation in other parts of the world is completely different. Other central banks want to keep their rates low, many have introduced negative interest rates, and other central banks continue to print more paper money. This disparity in the monetary policy could lead to several ugly outcomes, all of which are good for gold.
Long-Term Gold Prices Forecast
I will go as far as to say this: gold is selling for 50 cents on the dollar. And between now and the New Year, investors might be able to get into gold-related investments and even better prices. What I’m saying is that, in the short term, the price of gold may be manipulated down. But, in the long term, it could provide massive returns.
My prediction hasn’t changed: $2,500/oz gold over the next couple of years. And that will mean sharply higher prices for gold mining companies.