With the yellow metal breaking the $1,300 mark in recent weeks, there is one question on traders’ and investors’ minds: What is the price of gold going to be by the end of the year? Some experts predict gold prices could reach far past $1,400. Below are some of the short- and long-term factors that could influence such a rise in gold prices.
In the past few weeks of trading, gold has shown growing support and has remained above or near the $1,300 mark, an important psychological floor. In fact, the price was up more than 2 percent in less than one week of trading. While the markets will continue to reflect the impact of short-term factors over the coming months, many experienced observers are now seeing the price of gold hitting the $1,400 level before yearend.
As explained by a leading strategist at WisdomTree, ‘There is a combination of events driving gold higher, including both political uncertainty and hedge fund buying. If these extreme political circumstances continue it could drive the price to $1,400.’
In assessing the probability of a gold rally, several key factors are worth considering:
As a proven safe haven asset, gold usually experiences a rise in prices when critical geopolitical issues make headlines. Currently, the ongoing concerns over North Korea have dominated the market’s attention, with a growing expectation of further confrontation. The recent U.N. action on sanctions has raised the ante in the war of words with the Trump administration, and North Korea leadership has promised a serious response. Any outbreak of violence could spur a significant spike in the market price of gold and other precious metals. 1
Signs of Inflation
Gold is seen as a preferred investment to protect asset values from the ravages of inflation. As the Fed continues to grapple with the U.S. economy, it is clearly communicating a desire to see at least a 2 percent annualized rate. As the markets watch the central banks and actual rates of inflation, the interest in gold continues to grow, as shown by the increase in investing in gold.
Historically Low Interest Rates
The Fed continues to talk about finally raising interest rates. However, not only has the FOMC delayed its desired increases in 2017, it has reduced its targeted 3 percent fed funds rate by 2019 to only 2.8 percent. While that seems a small decrease, the fact they are lowering it is significant. Gold is sensitive to what interest rates are being earned, as it does not pay a dividend or interest. Nonetheless, many savvy long-term investors are breaking from the traditional knee-jerk reaction to interest rate increases. With years of continued low rates in the forecast, analysts are seeing that the appreciation in gold prices is far more attractive than miniscule, taxable interest earnings.
In reality, the Fed is creating a double-edged economic threat to the U.S. and its markets. According to many experts, the Fed simply cannot raise the federal funds rate as fast as they wish to. Bill Gross, a respected bond expert with Janus Henderson Investors, noted recently in an interview on CNBC that ‘If they followed their plan … which basically projects over the next two years for fed funds to reach 2.8 [percent] or even 3 percent, a 170 basis point increase, then yes a recession is possible.’ Of course, any prospect of or actual economic downturn traditionally drives more investors to safe haven investments such as gold, creating upward price pressure.
Gold Price Rise On the Way
There are a host of other factors that are bullish for gold prices. These include the uncertainties in the UK and EU over Brexit, continued weakness in the U.S. economy, and the growing expectation of an imminent, and potentially significant, stock market correction.
Some of these factors will provide short-term increases in the price of gold, and others support a higher price for the long term. Normal volatility will create some opportunities to buy at lower prices. However, whether the price hits or exceeds the $1,400 mark in the near term, the growing consensus is the signs are bullish for the price of the yellow metal in the coming months.
Read additional expert insights and analysis in our newest report, Gold’s Going Down?