George Milling-Stanley, the head gold strategist at State Street Global Advisors, has been making the case that spot gold will continue to rise toward $1,375/oz by the time Christmas rolls around.
With this prediction in mind, Milling-Stanley is advising that investors with positions in gold refrain from taking profits off the table yet. He points out that the situation across the markets remains risk-off. With investors searching for risk-off assets, there appears to be more room for the precious metal to run.
Steady Wins the Race
A steady and consistent market is not nearly as exciting as a volatile market. Any trader will attest to that: volatility is the prerequisite for quick profits. However, it's also a great way to blow your money.
Since its rapid climb over the first three months of the year, the gold price has been stuck in what is called "consolidation" by investing wonks. This refers to a period of largely inactive price action. Consolidation occurs when a certain trend or pattern is at a crossroads. For instance, will the gold market give up its strong gains from the first quarter, as it has in the past few years? Or, will the trend continue through the end of 2016? A period of consolidation is the "calm before the storm" where such questions are worked out.
As gold largely trades sideways in the $1,250/oz range, it seems increasingly likely that the yellow metal will hold onto its recent gains. In support of this notion, Milling-Stanley believes that most of the interest in gold has been due to investment rather than speculation from "hot money." He rightly points out that a gradual gain of another $100 per ounce by year's end would be healthier than a rush of such "hot money" into the market, as happened in 2011 right before the metal plunged from its all-time high.
Comparing Apples to Apples
The usual argument against holding gold through consolidation is that other assets offer better returns. Milling-Stanley explains that the state of the current global markets invalidates this perspective:
"For 40-something years, since I first got into gold investing in the 1970s, people have been saying it doesn't pay a return. Well, guess what? Not much else does these days, either. People are charging you to store money. GLD costs less at 40 basis points [0.40%] annually than holding Swiss francs."
Another noteworthy development regards the supply of gold. For the first time since 2008, overall mining output for gold is falling. Any decrease in the global supply would also be supportive of higher prices.
Moreover, while gold appears primed for steady sailing after an early surge, silver appears to be catching up and taking the torch from its precious metal cousin. During gold's early-year climb, the price of silver offered only modest returns. Seemingly on cue, as gold has evened out, silver is now spiking. After posting its best weekly gain (5.7%) in 11 months last week, spot silver has continued to rise. The argent metal followed up its impressive week by jumping nearly 5% during trading on Tuesday, approaching the $17/oz mark for the first time since May 2015.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.