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Use this gold price weakness as 'aggressive buying opportunity', says Goehring & Rozencwajg

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(Kitco News) Even though the first leg of the gold bull market is over, investors should use these temporary lower prices as an “aggressive buying opportunity” before the second leg of the rally kicks in and takes the precious metal above $10,000 later this decade, said Goehring & Rozencwajg Associates managing partner Leigh Goehring.

After falling to 2-month lows this week, gold prices have more room to decline before resuming the second leg of its rally, Goehring told Kitco News on Tuesday.

“We believe gold could pull back as we progress through the fall. Gold looks to have peaked in the first leg of this gold bull market at $2,070, and it looks now to have rolled over. We wouldn’t be surprised if gold pulls back in the next three months to its 200-day moving average, which today sits at about $1,720,” he described. 

At the time of writing, December Comex gold futures were trading at $1,869.30, down 2.01% on the day. 

Goehring highlighted a number of reasons why he foresees more weakness in the gold price this fall, including a chance of a successful presidential election, the introduction of a COVID-19 vaccine, and stagnation in the growth of the Federal Reserve’s balance sheet. 

Everyone, according to the VIX, seems to be betting against a successful election but if that is not the case gold could see a negative impact, explained Goehring.  

“Indices such as the VIX indicate a huge amount of fear, anxiety, and turmoil has now been priced into the market regarding the potential outcome of a contested election. If Donald Trump or Joe Biden win a convincing victory, and the 2020 presidential election is concluded with minimal disruptions surrounding the integrity and validity of polling returns, this could potentially add some downward pressure to gold prices,” he said. “The markets are expecting election trouble, and if this doesn’t happen, we could see a sell-off in ‘risk-off’ assets such as gold.” 

A successful and quick introduction of a COVID-19 vaccine would also weigh on gold as economies begin to quickly reopen, accelerating the economic recovery.  

“If investors become convinced that an effective vaccines could be rapidly introduced, and that economic activity and recovery could proceed without COVID-19 fears, gold could come under selling pressure as investors sell an asset class that has benefited hugely from all the COVID-19 related economic dislocations,” Goehring said.

The Fed’s balance sheet also plays a key role for the yellow metal this fall, the managing partner added. 

“Gold has benefited hugely by the massive expansion of the Fed’s balance sheet over the last six months. However, the Fed’s balance sheet has stopped growing, and this very important underlying factor for gold’s recent $800 move in price has now been pulled away,” he noted.

Inflation will drive the second leg of gold price rally

Gold’s impressive rise from $1,050 in December 2015 to $2,070 in August 2020 was only the first leg of the massive gold bull market that will take the yellow metal past $10,000 an ounce level later this decade, Goehring pointed out. 

“The first leg of the gold market has been driven by COVID-19 global ‘lock-downs’ and their resulting economic dislocations such as massive expansions of global central bank balance sheets,” he said. 

The second leg of the bull market will kick in alongside accelerating inflation. 

“The weakness in the gold price that we expect this fall should be used as an aggressive buying opportunity … We are firm believers that the second leg of the gold bull market will be driven by inflation that will emerge as the world undergoes an economic boom caused by rapidly receding COVID-19 fears, and excess fiscal and monetary liquidity caused by governments and global central banks,” Goehring said. 

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