Gold To Shine As Investors Ignore Growing Recession Risks - In Gold We Trust 2017
(Kitco News) - Investors continueto take a cavalier attitude to economic risks, piling into equities, but onemajor gold fund sees the market at an important precipice that could benefitthe yellow metal.
In itsannual In Gold We Trust report, managers at Incrementum AG warned thatinvestors are ignoring growing risks of a recession or the potential for theU.S. economy to fall into a stagflation scenario, where growth slows butinflation rises.
"Lowinterest rates combined with the pressure to invest and [Fear of Missing Out],have nurtured a treacherous sense of carelessness within many marketparticipants. Scenarios such as significantly higher inflation or a recessionare currently treated like black swans, although history shows that theseevents do occur at regular intervals," the authors, Ronald-Peter Stoeferle andMark Valek, said in the report.
"We consider a bullish stock market currently as the mostsignificant opportunity cost for gold. Therefore, a clear break-out of the goldprice should only be occurring amid a stagnating or weaker equity market," theyadded. "After almost five years of underperformance relative to the broadequity market, the tables might slowly be turning now in favor of gold."
The report noted that the fourth-quarter of 2016 was a majordisappointment for gold as the market gave up a lot of its gains that year;however, 2017 has seen renewed interest, leading to a strong recovery. As ofJune 1, when the report was released, gold was up more than 10% since the startof the year; the gains have been made in the face of a U.S. dollar that hit a14-year high and record-high equity prices.
"We regard this as a remarkable development and as a primeexample of a bull market, whose starting gun has not been heard yet by themajority of investors," the firm said.
While the firm admits that its current call for gold to riseto $2,300 an ounce by 2018 could be a little too optimistic, the fund managersremains bullish on the metal.
In this year's report, Incrementum sees four major scenarios that will drive the gold market inthe long term.
In thefirst scenario where U.S. economic growth pushes above 3% and inflation remainsbelow 3%, gold could trade in a range between $700 and $1,000 an ounce.
In thesecond scenario where the U.S. economy continues to muddle through with growthand inflation hovering between 1% and 3%, the firm could see gold trading inits broader range between $1,000 and $1,400 an ounce.
In itsthird scenario where the U.S. economy grows more than 3% but inflation alsorises above 3%, gold prices would trade between $1,400 and $2,300 an ounce.
In itsfinal scenario, if U.S. economy falls into a recession or sees low growth andhigh inflation, gold prices could rise between $1,800 and $5,000 an ounce.
"Weassign the highest probability to the latter two scenarios. Similar to the1930s and the 1970s, these scenarios would be difficult to navigate, but at thesame time provide quite interesting investment opportunities," they said.
"Whether one fully agrees with our critical assessment ofthe system is one thing; the question of whether one should hold an appropriateshare of one's liquid wealth in the form of a golden insurance reserve' is adifferent kettle of fish entirely."
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities,securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.  |