It didn’t seem possible this time last year but, yes, $2020 gold is no longer a “pie in the sky” number. The adage “good as gold” actually means something again. Gold is currently the strongest commodity on the board with the exception of palladium. That gold is rallying in the face of a surging dollar is even more impressive.
The world’s largest hedge fund (run by Ray Dalio) is forecasting $2,000 gold. They cite “…increased income inequality in the U.S. and rising tensions with China and Iran as uncertainties that will prompt more safe-haven buying.” Other respected analysts have started to climb on the gold bandwagon as well.
Tuesday’s futures settlement at $1,603 per ounce was the highest since April 2013. On Wednesday, gold made a new swing high, eclipsing the $1,613.30 it logged in early January trading. The rally caps are back on.
Data Source: Reuters/DataStream
Gold’s break over new highs means it’s within shouting distance of our next upside objective of $1,650 per ounce. That’s good news for holders of the June 2020 $1,550 / $1,650 bull call spreads we suggested purchasing for $1,500 or less back in October. These spreads settled yesterday at $5,140. A new high also means it’s time to set a new target. We are adding a new $1,950 per ounce objective to our existing $1,650 and $1,775 targets. While $2,000 (or $2,020) gold is not in our sights yet, it is awfully close.
Five Fundamental Factors Power the Bull Market in Gold
- Gold is acting like money again. Central banks and other large investors are using gold as a hedge against currency holdings, all of which – with the noted exception of the US dollar – are suffering artificially low, and even negative interest rates.
- Central banks are buying a lot of gold for the reasons listed in item 1.
Source: World Gold Council - Low and negative interest rates not only make the opportunity cost of holding gold minimal, they actively contribute to weaker currencies. This accounts for much of the yellow metal’s upward momentum.
- Gold has a history of being a hedge against global chaos. Trade tensions between the US and China (and perhaps even Europe) combined with what is shaping up to be the most divisive American election since the Vietnam War could lead to geopolitical mistakes that could knock the legs off the global economy.
- Demand from low-priced ETFs is soaring. According to the World Gold Council (WGC) the assets under management (AUM) of low-priced global gold ETFs are just 2% short of the all-time highs made in 2012 when gold traded as high as $1,798 per ounce.
RMB Group trading customers who don’t have upside exposure to gold may want to consider using a bull call spread strategy similar to the June $1,550 / $1,650 bull spreads we suggested purchasing for $1,500 or less back in October, looking for gold to hit our $1,775 and $1,950 per ounce targets. Your personal RMB broker can help design a strategy custom-tailored to your needs.
Please be advised that you need a futures account to trade the markets in this post. The RMB Group has been helping its clientele trade futures and options since 1991. RMB Group brokers are familiar with the option strategies described in this report. Call us toll-free at 800-345-7026 or 312-373-4970 (direct) for more information and/or to open a trading account. Or visit our website at www.rmbgroup.com. Want to know more about trading futures and options? Download our FREE Report, the RMB Group “Short Course in Futures and Options.”
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The RMB Group
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