Gold, the sleeping giant: $3,000 price level could happen
Historically, corrections in gold prices have made for sound buying opportunities, and this time is no different, said Andrew Hecht, of the Hecht Commodity Report.
In a recent article, Hecht noted that gold’s pullback below $1,700 last week could mark the start of a new bull rally.
Long-term, prices are headed towards $2,000 an ounce, with $3,000 or higher within the realm of possibility, he said.
“Gold many be sleeping for now, but much higher highs are on the horizon if the price action that followed 2008 is an example,” Hecht said.
When buying on dips, Hecht prefers levered exchange traded funds, the ProShares Ultra Gold (UGL) and the Velocity Shares 3X Long Gold ETN (UGLD).
Gold prices traded lower on Monday, with June gold futures down $17.10 an ounce as of the afternoon.
Hecht noted that since gold’s rally up to a high of $1,788.80 an ounce in April following the bottom in mid-March, the yellow metal has not retraced its midpoint of $1620.90 and has maintained a range around the $1,700 level.
At the same time, price momentum looked neutral on either side of the $1,720 an ounce level with the total number of open long and short positions flatlining around the 500,000- contract level since late March.
However, recent economic developments are about to break this price ceiling, he noted.
The record-levels of monetary stimulus, many times in magnitude of what was issued in 2008, present the catalyst for gold’s upcoming meteoric rise, the report said.
“The stimulus was bullish for the gold market in the aftermath of the 2008 financial crisis. Gold is likely to have an even more explosive impact on the yellow metal in 2020 and beyond,” Hecht noted. “The current [stimulus] requirements, at over five times more than in 2008, reflect a far more severe threat to the economy in 2020.”
Furthermore, we are only seeing the tip of the iceberg when it comes to bad economic data releases, Hecht noted.
“There are no precedents for the self-induced coma in the US and global economies. The loss of jobs, contraction in the worldwide economy, and price tag for the global pandemic guarantees that the data over the coming months and years will reflect the most challenging period since the Great Depression of the 1930s,” he said.
Wall Street analysts concur, with J.P. Morgan recently projecting that U.S. GDP could contract by 40% in Q2 and unemployment reaching 20%.
Even once the economy starts to recover, many of the jobs lost today will unlikely return, Hecht said, which would create further tailwinds for gold.
“The economy will require government stimulus programs and record low interest rates for the foreseeable future. Stimulus increases the money supply, which weighs on the value of the fiat currencies that derive value from the full faith and credit of the countries that issue the legal tender,” the report noted.