Will Gold Still Be Cheap This Year?

Our short answer is: probably not. Below is the longer version, addressing enquiries from clients who have been planning to invest in gold for some time, wondering whether to wait for a correction or buy at the current, higher-than-expected price level.

THE TECHNICAL PICTURE

The gold price broke out of the USD 1,200–1,350 per ounce range last June and only paused around USD 1,560 per ounce: it corrected to around USD 1,450 per ounce in September, then after a brief sideways period bounced off USD 1,450 in December and, driven by the Iranian conflict, even touched USD 1,610 per ounce.

The next resistance zone therefore lies around USD 1,610 per ounce, which the price is currently wrestling with. Should it break through this level as well, the next stopping point would be expected around USD 1,700–1,750 per ounce.

IS GOLD EXPENSIVE AT ALL?

In historical terms, not excessively.

The 2011 bull market peaked at USD 1,920 per ounce, and the January 1980 all-time high of USD 850 per ounce would correspond to approximately USD 2,500 per ounce in today's money when adjusted for inflation. It is worth noting that although investor demand has risen, we are nowhere near the gold-buying frenzy that characterised the top of the market in 2011–2012.

In our view, there is therefore still room for further price appreciation, particularly when the following factors are taken into account:

• The major central banks continue to print money while their governments relentlessly expand sovereign debt

• US Treasuries now offer negative real yields even over a 10-year horizon

• The weakening trend of the forint against the euro and the dollar remains intact; the current — presumably temporary — strengthening has so far been offset by the rise in the gold price

• The (media) panic over the coronavirus has clearly highlighted the vulnerability of global trade supply chains ever since China became the world's assembly workshop

On this basis, we do not expect a significant decline in the gold price (below USD 1,540). Conclude remains optimistic about the medium- and long-term (3–5 year) outlook for the gold price, and our internal target prices lie considerably above current levels.

UNDERVALUED ALTERNATIVES

Good news for those who wish to avoid a "pain trade" at all costs: silver and platinum remain inexpensive in historical terms. Silver, currently at USD 18.40 per ounce, sits USD 31 below its all-time high; platinum, at USD 1,010 per ounce, trails its record by USD 1,077.

With a Goldtresor Premium precious metals account, you can invest in physical silver and platinum VAT-free, and can also order silver coins with differential VAT and VAT-free freeport silver bars from our webshop.

POPULAR INDUSTRIAL PRECIOUS METALS

As we also wrote in our article picked up by MTI recently, rhodium — used in catalytic converters — and palladium have posted extraordinary gains due to tightening environmental regulations applicable to car manufacturers. Palladium is worth nearly twice, and rhodium more than ten times, what it was a year ago.

These industrial precious metals markets are already showing strongly bubble-like signals; moreover, they are products that are difficult to sell on the physical market and subject to VAT, making them unsuitable — or only very marginally suitable — for investment purposes. But as long as the automotive industry is performing well, the palladium and rhodium story may continue.

WHAT IS THE KEY TAKEAWAY?

We believe gold has entered a more mature phase of its bull market, and that the goal has now become breaking through previous price peaks. Even at current price levels it is worth entering the market if the objective — alongside a reasonable expected return — is also to improve the safety of our portfolio.

Silver will in all likelihood follow its yellow companion faithfully and may ultimately outshine it, stealing the show. At that point it will be worth considering whether to swap the silver purchased now back into gold.

Platinum is now beginning to attract substantial buying from professional market participants, so significant price appreciation is also expected there.

The palladium and rhodium story may continue to roar, although a major risk there is a downturn in the automotive industry — while there may still be supply and demand shocks capable of inflating the bubble further.

Of course, nothing is guaranteed, but an encouraging sign for precious metals markets is that the gold price has been able to rise even against the backdrop of a strengthening dollar.

Please note that Conclude Zrt. does not provide investment advisory services. Our aim is to inform our readers about the prevailing conditions in the gold market at the time of publication.