According to Ross Norman (pictured), CEO, Sharps Pixley, a London-based bullion broker, gold could be in the very early stages of a bull run.
“We are seeing distinct similarities with the very early bull run in the late 1990s, just before we saw that inflection moment. There was massive despondency in the physical market for gold, increasing M&A amongst the miners and a market tracking sideways with falling prices and falling volatility.”
In the late 1990s the gold price reached its lowest level in real terms for two decades. Yet between 2000 and 2008, gold increased 16 per cent year-on-year and, between 2009 and 2011, it rose to 24 per cent year-on-year.
Norman believes that the gold price has formed enough of a base to break through USD1360 an ounce. “Everything changes once we break through USD1360; it is the mother of all resistance levels.
“In my view, in 2019 we will challenge that level. We have already reached USD1346, in February. Once we breach that, we should see a steady rise to around USD1800 an ounce.”
Until recently, investor demand for gold, particularly in the west was lacklustre at best. The strong US dollar made gold very expensive – gold is measured globally in US dollar terms – plus the continuing strength in the equity markets as well as rising interest rates in the US, kept the price of gold low.
But in 72 currencies, gold is at or close to an all-time high, states Norman. “Look at the Indian rupee, Canadian dollar and the Aussie dollar. This is often what you see in the early stages of a bull run in gold, where we start to see all-time highs - a stealth bull run if you like.”
Demand from central banks has risen exponentially too. In Q1 2019, central banks bought 145.5 tons of gold, up 68 per cent on the same period in 2018 which represents the strongest start to a year since 2013 according to the World Gold Council. Countries such as China and Russia who are extremely underweight gold have been adding to their reserves. “It looks to be the best year so far since 1967,” says Norman.
Not only that, Comex, a metals futures exchange, has seen strong gains. “The speculators who had previously been underweight gold, are now piling into the market. They have gone from being totally disinterested to average in one step which is a big move,” he adds.
“A combination of central bank buying, surging demand from institutional investors for gold ETFs and increased activity on Comex means that the mood is very positive towards gold. It’s only the retail investors that are late to the party,” adds Norman.
The Sharps Pixley CEO warns investors not to be swayed by noise, such as Trump, Brexit or the trade tariff talks and that it is important to look at the macroeconomic factors. “If the market is on the same lines as the late 1990s then we are likely to see double digit increases in the next two to three years,” adding, “But those looking to enter the market have to be patient.”
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