All good ideas arrive by chance– Max Ernst
For what seems like an eternity for the bulls, the gold market has suffered from a strange cognitive dissonance, stubbornly refusing to react to the signs of the times.
At a time when interest rates everywhere fell to historical lows, signs of a synchronized slowdown of the global economy abounded while trade wars and geopolitical tensions continued to rise, the gold market remained a snoozefest as investors’ love affair with the stock market endured.
But reality appears to have hit home–finally.
Gold prices have hit the highest level since 2013 as declining housing market sales, intensifying geopolitical risks and a retest of key levels worked in tandem to fuel a massive rally.
Gold prices have surged 22.5% over the past 12 months and 6.2% in the first week of the New Year even as they moved in lockstep with the stock market.
And the pundits have now come out and predicted that gold is just getting ready for a supercharged 2020 rally.
Here are a few catalysts that could make that work.
(Click to enlarge)
Source: Trading View
#1 US-Iran Crisis
According to Peter Schiff, CEO at Euro Pacific Capital and a prominent gold investor, rising geopolitical tensions are mostly to thank for spiking gold demand. The assasination of Iranian general Qassem Suleimani three days ago on President Trump’s orders sparked turmoil in the financial markets even as Iran vowed to retaliate.
In bellicose form, Trump tweeted on Saturday that the United States has, “targeted 52 Iranian sites … some at a very high level & important to Iran & Iranian culture, and those targets, and Iran itself, WILL BE HIT VERY FAST AND VERY HARD.” Trump has also vowed to respond to any retaliatory attacks by the Iranian government with crippling sanctions.
“Crazy Trump, don’t think that everything is over with my father’s martyrdom. The families of US soldiers in the Middle East will spend their days waiting for death of their children,’’ Zeinab Suleimani, Suleimani’s son, has vowed in an address on a state television broadcast. Meanwhile, defiant crowds have walked the streets of Tehran chanting, “Death to America” and “Death to Israel”.
It’s almost certain that this will escalate into something nasty if Trump makes good on his threat to attack Iranian cultural sites since this is strongly prohibited by international conventions. In 2017, the United Nations security council unanimously passed a resolution that condemns the destruction of heritage sites. Such an attack would undoubtedly lead to the loss of civilian lives and a one-two counterpunch between the two nations would ensue.
Both gold and bitcoin have rallied hard after the assasination but for different reasons.
Investors are buying gold on its reputation as a reliable safe haven. Bitcoin, on the other hand, is being bought by speculators who are betting that investors will also start viewing it as a safe haven.
A full-blown crisis could still be averted though if US politicians act fast enough. US House Speaker Nancy Pelosi has termed the assasination “provocative and disproportionate” and said legislation will be introduced in the current week to stop the president from taking unilateral military action against Iran without involving Congress.
#2 Weak Housing Market
A weak and underperforming housing market can act as a medium-term catalyst for gold prices especially if it sustains the momentum against a backdrop of heightened geopolitical tensions.
Gold and real estate are regarded as major “real assets” or physical assets. Whenever either of the pair underperforms, the other tends to benefit as more money flows into the sector. The housing market has been printing highs on several indices as home values continue soaring thus pricing out many buyers.
(Click to enlarge)
With the US real estate market set for another weak year, gold prices could continue to climb.
#3 Gold Price Momentum
The magnitude of the latest gold upswing after the Suleimani assassination has surprised even the bulls. The current spot gold price of $1,578.30 per ounce has already broken a key resistance level at $1,550 which has acted as a particularly heavy resistance level since 2013.
With that out of the way, experts say the next key resistance levels will be at $1,800 and $1,900, meaning we could be looking at a 14%-20% rally from here.
Overall, the ongoing gold rally is an excellent contemporaneous indicator of what’s happening in the market. Since these positive catalysts appear set to remain that way in the foreseeable future, it’s safe to say that the gold bulls could enjoy another banner year in 2020.