The U.S. economy continues to battle storm clouds on every side.
Experts were caught off guard last week when a particularly bad data report hit the wires, sending gold prices up for a fourth week in a row.
Not surprisingly, the news was about employment. U.S. job growth in May landed well below expectations with only 138,000 new jobs created in May.
This news comes on the back of other troubling economic signals. GDP has increased by an annualized rate of just 1.2% since the start of 2017. During the first quarter, the U.S. economy grew at the slowest pace in three years.
Atavest principal and co-founder Michael Armbruster thinks the dollar will continue to weaken and Treasury yields will fall in the wake of these disappointing jobs numbers. Not good news at all for the stock market. As such, he expects bullish tailwinds for gold.
“A flattish yield curve, low interest rates, a moderating U.S. dollar and an equity market which could be subject to a correction: all very positive developments for the yellow metal,” TD Waterhouse has said. “Safe-haven buying may accelerate.”
FEDERAL RESERVE: SOON TO BE BACKPEDALING?
Before the meager job numbers were released, traders were expecting a 90% probability of a Fed rate hike in June. Most experts believe that will still happen, despite the red flags of an economy that is losing steam. But what could be next?
That is now an open question.
ING Economist James Smith thinks the Fed’s next step is far from certain, no matter what has been reported. This is a scary thought if you consider how the stock markets have already priced in multiple interest rate hikes for 2017. This isn’t mere speculation… it has been based on repeated Federal Reserve statements. Now that could all be off the table.
Bill Baruch, senior market strategist at iiTrader, says U.S. economic data does not support a third rate hike this year. According to Smith, core inflation has struggled to converge on 2%, wage growth has been anemic and the possible success of Trump’s fiscal plans remains highly uncertain.
California State economics professor Sung Won Sohn argues that the likelihood of any Trump stimulus – whether tax reform or infrastructure spending — has decreased significantly in recent weeks.
OVERHEATED STOCK MARKET RAISES ANALYST EXPECTATIONS FOR GOLD
Gold’s performance recently is causing analysts to predict $1.300 an ounce and above as a viable target price. It isn’t just gold that is benefiting from skittish investor investor: palladium and silver are also posting healthy gains.
Looking ahead, some analysts are bullish that gold could trend higher on the back of a weaker U.S. dollar and falling bond yields:
Ole Hansen, head of commodity strategy at Saxo Bank, thinks a weaker dollar is ahead and that will be positive for gold, combined with dashed hopes for multiple Fed rate hikes this year.
FXTM currency analyst Lukman Otunuga expects gold will appreciate towards $1,300 an ounce as dollar weakness provides a firm foundation for gold buyers.
ICBC Standard Bank head of precious metals strategy Tom Kendall sees gold breaking through $1,300 an ounce by early July.
TD Waterhouse says there are “plenty of reasons for investors to keep gold in their portfolio,” with a forecast of $1,300 gold or higher.
A MARKET CORRECTION IS INEVITABLE
Safe haven buying is one of the main reasons why gold prices have been surging. President Trump’s embattled policies, the Russian investigations and the threat of war have all led investors to seek out the historic security and unrivaled privacy offered by gold.
Author James G. Rickards thinks the stock market is overleveraged and overdue for a painful correction. Rickards is bullish on gold over the long term because of geopolitical uncertainty, rising inflation and the growing disconnect between overheated financial markets and the USA’s actual slowing economic activity. He advocates a 10% weighting in gold for most investors.
Famed investor Marc Faber believes the U.S. markets are in an ever-growing bubble that could deflate fast by as much as 50%. Faber believes we are in a similar environment to late 1999, just before the tech bubble began to collapse. According to Faber, consumption is relatively weak, wages will deflate and the U.S. economy will further weaken. Faber prefers gold to the U.S. stock market today.
Simple supply and demand trends have helped gold as demand for bullion for the first quarter of the year was up nearly 9%.
THE BEST DECISION YOU CAN MAKE
In today’s world of dramatic headlines and rapid change, the only certainty for retirement investors today is… continued uncertainty. If your golden years are coming up fast, the stock market is a risky place for you to be over-invested now.
Are you willing to risk your family’s future betting that stocks and the U.S. dollar will continue to climb, the national debt will fall, President Trump will succeed with his entire business-friendly agenda and partisan gridlock in Washington, D.C. will end?
Personally, I like to hope for the best. But my family counts on me to plan ahead for reality.
Systemic uncertainty in the markets is here to stay and owning physical gold and silver is a prudent safe-haven hedge you cannot afford to be without.