Even though gold is up 20% so far this year, one major bank says this is only the beginning of what it expects to be a “new and very long bull market.”
Solita Marcelli, global head of fixed income, currencies and commodities at JPMorgan Private Bank (open only to wealthy investors with at least $5 million of investable assets), told CNBC this week that the bank’s analysts are expecting to see gold prices go higher for the rest of the year.
“After seeing three back-to-back years of losses, the precious metal has rallied 20 percent in 2016. And that's just the start of the next leg higher,” said Marcelli. “$1,400 is very much in the cards this year.”
This is a big shift from the bank’s bearish position on gold at the beginning of the year when analysts expected lower gold prices on rising interest rates and a strong U.S. dollar. In January, the JPMorgan forecast for gold, as submitted to the London Bullion Market Association, put gold in a trading range from $990 an ounce to $1,325, with an average annual price of $1,104 for 2016.
A big factor in the bank’s change of heart on gold is the spread of negative interest rates around the world. Currently, number-crunchers estimate that some $8 trillion in global sovereign debt now carries a negative yield.
Marcelli said that because of the trend to negative real and nominal interest rates, “Gold is looking more and more attractive every single day. As a non-yielding asset, it has a minimal storage cost, so when you compare it to negative-yielding assets, it actually has a positive carry…Gold is a great portfolio hedge in an environment where world government bonds are yielding at historically low levels.”
Marcelli stated that ultimately gold could wind up actually replacing sovereign bonds, long considered the safest of safe places for wealth, as the preferred safe haven for investors.
She also expects central banks to continue buying gold to diversify their foreign exchange reserves.
World Gold Council: Record Gold Demand Growth in Q1
The just-released Gold Demands Trends report for the first quarter from the World Gold Council reveals the strongest first quarter ever for gold and the second highest of any recorded quarter.
Overall gold demand surged 21% for the quarter, the biggest gain ever recorded. Though jewelry demand slipped 19%, mainly on softness in China and India, investment demand soared 122% year-on-year and 201% compared to the last quarter of 2015. Demand for gold coins and bars jumped 55%. Gold ETF demand exploded by more than 300%.
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