Out­look: Is the price of gold doomed in 2018?

Financial Mirror (Cyprus) - - FRONT PAGE - By Jon C. Ogg

If there is one unit that has rep­re­sented a store of eco­nomic value around the world for all of known his­tory, it is gold. The shiny yel­low metal has been con­sid­ered the ul­ti­mate “real reserve” for na­tions through­out time. And the end­less lust for gold has in­spired more movies and nov­els in the last hun­dred years than can be eas­ily counted. The price of gold is still up about 10.5% so far in 2017, but gold is up only 1% from this time a year ago.

There are some more ev­i­dent cracks in the price of gold as 2018 ap­proaches. With a global re­cov­ery un­der­way and with ris­ing in­ter­est rates abound­ing, some in­vestors might have se­ri­ous fears about the price of gold into 2018. Things like own­ing bit­coin, earn­ings in­ter­est, get­ting div­i­dends and be­ing in the mega-growth stocks might just keep a shadow over gold.

As the end of 2017 gets closer, there may be a more clear pic­ture for gold in 2018.

As of Fri­day, Novem­ber 10, the price of gold was down al­most $10 per ounce to $1,275.85. Since mid-Septem­ber, gold has re­mained mostly in a trad­ing range be­tween $1,270 and $1,300 per ounce. A tight range is likely to worry true tech­ni­cians when those tight bands get tested. Af­ter all, a break­down or a surge higher seems more likely af­ter tight ranges get busted. If the test is hap­pen­ing on the down­side, then you can guess what the trend­ing chartists will be say­ing.

Cen­tral banks have con­tin­ued to be net buy­ers of gold. The World Gold Coun­cil re­cently showed global de­mand trends show­ing that cen­tral banks, and gold in­vestors com­bined, were just not strong enough to keep gold de­mand high in the third quar­ter. Even lower new sup­plies did not man­age to keep de­mand up, although lower sup­plies would the­o­ret­i­cally try to keep a floor un­der gold.

But on the cen­tral bank­ing ef­forts, it turns out that ris­ing U.S. in­ter­est rates pose a threat to gold. Af­ter all, gold pays no div­i­dend and you earn no in­ter­est from it. And neg­a­tive in­ter­est rates and as­set pur­chases may not be as ro­bust in Ja­pan and Europe in 2018. If China needs to keep bol­ster­ing its eco­nomic ex­pan­sion and in­ter­na­tional growth am­bi­tions, then maybe it won’t be an ag­gres­sive buyer either.

What if the dom­i­nance of gold ex­change-traded funds (ETFs) just isn’t there any­more? The SPDR Gold Shares (NYSE: GLD) was shown to have net cap­i­tal out­flows (ETF sell­ers ex­ceed­ing buy­ers in to­tal dol­lar vol­ume) of al­most $100 mln on Fri­day alone. Its clos­ing price of $121.13 was down by $1.00 on Fri­day, ver­sus a 52-week trad­ing range of $107.00 to $128.32. This ETF has ex­isted since 2004 and had a to­tal value of $34.8 bil­lion on last look. That is of course mas­sive, but is far un­der its peak.

As dan­ger­ous as the world is, ar­eas like North Korea, Syria, Iran and new un­rest in Saudi Ara­bia have to at least re­mind the world that there is a need for a true safe haven. That safe haven may be gold, de­pend­ing upon how the rest of the global eco­nomic in­vestable as­sets are priced at the time. RBC Cap­i­tal Mar­kets still has some bright hopes for gold in a man­ner. One way to hedge against geopo­lit­i­cal risk is not just gold, but by own­ing gold-min­ing stocks and gold roy­alty com­pa­nies. RBC even sees big likely gains ahead for Gold­corp (NYSE: GG), Kin­ross Gold Corp. (NYSE: KGC) and Royal Gold Inc. (NAS­DAQ: RGLD).

And speak­ing of gold min­ers, the VanEck Vec­tors Gold Min­ers ETF (NYSE: GDX) has not been sig­nalling great as­pi­ra­tions for gold min­ers in gen­eral. The ma­jor stock mar­ket in­dexes have chal­lenged all-time highs week af­ter week in 2017, but the $8 bln VanEck Vec­tors Gold Min­ers ETF closed down over 1.2% at $22.52 on Fri­day. This mas­sive ETF is also down from its peak in size and it has a 52-week range of $18.58 to $25.71. Its chart has been ugly since a re­cent peak of $25.50 in early Septem­ber. Now we have to see if this bas­ing-out pat­tern right un­der $22.50 holds — if not, tech­ni­cians will be sig­nalling that triple­bot­tom in 2017 down closer to $21.00.

And what about the rise of bit­coin and cryp­tocur­ren­cies? Some younger peo­ple, and those spec­u­la­tors who are will­ing to fol­low less ob­vi­ous eco­nomic trends, are think­ing that bit­coin and cryp­tocur­ren­cies are the new gold of the mod­ern age. Out­side of the no­tion that you can’t touch bit­coin, it has many of the same elu­sive driv­ing forces that would in­ter­est gold in­vestors. If bit­coin were to keep es­ca­lat­ing be­yond the $6,600 re­cent price, then one ob­vi­ous source of funds might be for spec­u­la­tors to un­load some gold to buy bit­coin or other cryp­tocur­ren­cies. The global value of cryp­tocur­rency is now roughly $200 bln.

The real threats of war con­tinue to re­main threats, but the con­sol­i­da­tion of power that has been seen in Rus­sia, China, In­dia, Saudi Ara­bia and else­where may end up mak­ing the world more sta­ble. That of course re­mains to be seen, but a sta­ble world with less geopo­lit­i­cal risk might take away at least some ur­gency to own gold if that truly oc­curs.

It’s too early to get most firms to is­sue for­mal 2018 fore­casts yet. Still, some firms have low­ered ex­pec­ta­tions for gold in 2018. BNP Paribas gave a fresh 2018 fore­cast call­ing for the price of gold to be weak at the start of 2018. The firm ex­pects gold prices to then firm up in mid-2018, only to fall again based on ris­ing in­ter­est rates. BNP’s av­er­age 2018 gold price tar­get is $1,255 per ounce. And in re­cent weeks, Mer­rill Lynch low­ered its prior 2018 gold fore­cast of $1,400 per ounce down to $1,300 and then down to $1,250.

It is far too soon to pre­dict that gold is go­ing to have a hard year in 2018. Still, there are many is­sues lin­ing up against gold. And higher smart­phone and LED de­mand doesn’t seem to be enough on its own to drive gold end­lessly higher. (Source: 24/7 Wall St.com)

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