KINGSTON, NY, 10 OCTOBER 2018—Gold's down some 13 percent this year and on Monday dropped sharply for the same reason we have been long forecasting: The higher U.S interest rise, the lower gold goes.
It's a simple equation. The higher rates increase, they boost the dollar and push up U.S. Treasury yields, making gold a less attractive investment since it does not bear interest. And with the benchmark 10-year U.S. Treasury note at 3.23 percent, its highest level in 7 years, more money is going into viable alternatives, such as risk-free Treasury bonds.
Moreover, the expectations that the U.S. Federal Reserve will increase rates again in December, the fourth increase this year, and three or more next year, has left investors fearful that gold prices will continue to fall as rates rise higher.
THE WORST ISN'T YET TO COME
Over the past year, we have consistently forecast the downside of gold was in the $1,200 per ounce range, give or take moderate swings. And with gold trending downward this week, sinking to $1,185 on Monday, it is hovering generally where we had forecast the bottom range.
And, for the past five years we had forecast that gold had to break above the $1,450 per ounce mark, which it has not pierced, to push it back up to the $2,000 range.
Considering that gold prices are at the bottom levels of our forecast, we have identified socioeconomic and geopolitical factors that will not only push prices higher, but also bring them to our critical $1,450 per ounce breakout point.
Among them are rising oil prices fueled by fears of military and economic warfare escalation in the Middle East as Washington readies a new round of crippling oil embargoes against Iran taking effect on November 5th.
With oil prices having risen to a four-year high at around $85 per barrel in anticipation of the embargo, should military tensions increase in Syria, Yemen, Iran, Israel, Bahrain and other volatile Middle East nations, we forecast an oil spike of $100-plus a barrel will also trigger a sharp spike in the ultimate safe-haven asset, gold.
Moreover, with oil prices rising, which are dollar based, while currencies, particularly in Emerging Markets have fallen sharply against the dollar, the higher oil prices rise and the lower their currencies fall, the greater the downward pressure on their economies.
Under these conditions, gold's status as a safe-haven asset is greatly enhanced.
TREND FORECAST: It was cheap money that pulled the world economies and equities out of the Great Recession and it will be rising interest rates – expensive money, combined with spiking oil prices –that will trigger an Economic 9/11. As economies and equities begin to melt down, gold prices will heat up.