As we have long forecast, the higher U.S. interest rates rise, the lower gold goes. The stronger the dollar becomes, 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 expectations that the U.S. Federal Reserve will increase rates again in December, the fourth increase this year, and three or more next year, investors fearful that gold prices will continue to fall as rates rise higher.
But we have also forecast that a confluence of geopolitical and economic factors could set the stage for significant increases in the per-ounce value of gold, which remains the ultimate safe-haven asset.
THE GOLD TREND LINE: WHAT TO WATCH FOR
We have consistently forecast the downside of gold was in the $1,200 per ounce range, give or take moderate swings. And, indeed, gold has hovered slightly below and above that range for a sustained period – until U.S. equity markets sunk on recognition that rising interest rates pose fundamental, unavoidable negative consequences to economies and markets worldwide.
Now, two weeks or so after some $1.7 trillion was wiped off the S&P 500, in a three-day period, gold has edged up to the $1,230 range.
As gold moves up from the bottom-side risk we accurately identified, we are focused on a series of 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. Brent crude is hovering at $78 per barrel, a peak not seen since 2014, and oil prices will be further influenced 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.
Should military tensions increase in Syria, Yemen, Iran, Israel, Bahrain and other volatile Middle East nations, we forecast an oil spike to $100-plus a barrel will also trigger a sharp spike in the ultimate safe-haven asset, gold. TJ
As economies and equities begin to melt down, gold prices will heat up. 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.