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'There is a new bull market in gold'

January 16, 2020 09:00 IST

With the US-Iran crisis not lacking vigour, gold prices are correcting, reports Rajesh Bhayani.

Photograph: Reuters

Christopher Wood, a well-known market analyst with Jeffries, a Hong Kong-based Research organisation, said in his Greed & Fear report that the ultimate price target for gold is $4200 per ounce in the long term.

This is almost twice the price target of gold predicted by analysts at $2000.

While Wood did not mention by when gold will achieve this level, his target is more than double the all time high which gold prices saw on September, 5, 2011, at $1900 per ounce.


Gold bullion price rose by 18.3% in 2019.

"The significant break above US$1,460/oz in the September quarter is, hopefully, a further confirmation of a new bull market in gold," he stated in the report.

The positive trigger for gold in 2019 was clearly a renewed Federal Reserve easing cycle and the resulting realisation that the Fed will not be able to normalise monetary policy.

Today, gold is trading at $1550 per ounce, down from $1611 two days back.

"A long-term bullish view is maintained on gold bullion, with the ultimate price target still set at US$4,200/oz.

"This is because central banks, including the Federal Reserve, will not be able to exit from unconventional monetary policy in a benign manner and will ultimately remain committed to ongoing balance-sheet expansion in one form or another, just as the ECB renewed balance sheet expansion last quarter," Wood said.

Such policies will ultimately discredit those central banks that have pursued an unconventional monetary policy, threatening the stability and integrity of the current fiat-paper-money system.

However, with the US-Iran crisis not lacking vigour, gold prices are correcting.

According to Philip Newman, Director, Metal Focus (a London based research house), "In the very short-term, investor sentiment will continue to be dominated by developments in the Middle East (West Asia from India). Without a dramatic escalation, we would not be surprised if gold retreats towards, or below $1,500 in the coming weeks."

He also discussed two near-term headwinds for gold.

One is improving bond yields since last September, particularly in the US, which hit a 15-month high by end-2019.

Second is the apparent confirmation of a 'phase one' trade deal between the US and China.

He, however, is sure that once fears about a global economic downturn re-emerge, central banks will start loosening the policies which will benefit gold.

Not only is a retreat in gold prices possible, prices are also expected to be volatile.

Nigam Arora, a US-based market observer and author of Arora Report, said, "Algorithmically, the projected price range for gold is $1450 to $1700. Expect gold to be volatile later in the year."

In mid-term, he is also bullish on gold.

He said, "There are chances of interest rates staying low for a long time and low interest rates help gold. Also, there is speculation that the dollar will fall. Since gold is priced in dollars, any fall in the dollar, will push gold up."

Rajesh Bhayani in Mumbai
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