How High Can Gold Prices Go?

Gold has been in fine form this year. As the yellow metal is considered to be a safe-haven asset that investors flock to in times of economic distress, its price has shot up remarkably in 2019 thanks to the U.S.-China trade war.

As it stands, the spot price of gold is at more than $1,500 an ounce as of this writing. The price of the precious metal has increased by nearly 20% in 2019 so far and there’s a probability that it could head higher. Let’s see why.

Recessionary conditions could give gold a boost

The raging U.S.-China trade war has given gold prices a massive boost this year so far, though recent discussions between the two countries have led to a slight pullback. This is not surprising as gold thrives on fears of economic uncertainty and if those fears start dissipating, then gold price takes a hit.

According to Jeffrey Christian, managing partner of CPM Group:

“There’s a great deal of uncertainty and instability in the global financial markets and economies. And in that kind of environment, investors are bouncing around so they are buying into gold and buying out of gold.”

“Gold prices could fall a $100 very quickly if there were a resolution not only to the trade war but to other problems that are out there.”

So if there’s an improvement in the U.S.-China trade relations, then the price of the yellow metal will weaken. However, there are other catalysts that could give gold prices a boost going forward.

For instance, the risk of a recession around the globe remains high at present. CNBC quotes Morgan Stanley as stating:

“Even as we have been revising our growth projections lower, we continue to highlight that the risks remain decidedly skewed to the downside,” Chetan Ahya, the bank’s chief economist, warned in a note published Tuesday. “We expect that if trade tensions escalate further … we will enter into a global recession (i.e., global growth below 2.5%Y) in three quarters.”

As such, even if there’s an improvement in relations between the U.S. and China, the recession-like conditions that have developed in the end market will give the price of gold a nice shot in the arm in the future.

How high can gold go?

Bulls suggest that the price of gold could spike much higher in the coming months because of the uncertain end-market conditions. Investment bank Citibank has already issued a forecast stating that gold could get close to $2,000 an ounce in the future.

As reported by Kitco:

“In a recent research note, Shyam Devani, senior technical strategist at Citigroup, said that the ratio between gold and the S&P 500 is testing a critical pivot point and a break higher could trigger a rally that pushes gold prices 25% higher. Devani’s estimate would push gold prices to nearly $2,000 an ounce.”

But Citigold is not the only one calling for a big gold price rally. Dan Oliver, the founder of Myrmikan Capital, says that gold has the potential to go up to $3,000 an ounce as hedge funds get positive about the metal.

As such, don’t be surprised to see the price of the yellow metal keep rising as there are a lot of factors that could keep driving it higher.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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