Robert Rennie of Westpac shares why gold’s technical picture is stronger than most think.
As gold prices take a break after consecutive months of gains, one strategist told Kitco why the metal is ultimately set up to go much higher. Robert Rennie, global head of market strategy at Westpac, states gold’s technical picture is even stronger than given credit for.
The comments come after a streak of gold outperforming all other commodities as well as the U.S. stock market. According to Rennie, there is plenty more of that to go around, with what could be a sudden downturn in the U.S. economy looming around the corner.
Westpac projects that the U.S. will usher in a period of financial deterioration, one that will start later this year before moving on to envelop the next. According to the Kitco article, the period will arise right as the Federal Reserve pulls back on rate hikes, giving gold further reason to flourish.
The threat of stagnation has very much been present in the U.S. economy since reports of peaked-out employment in 2018. Adding to this, different bodies of state have had an unprecedented amount of disagreement surrounding the country’s budget, leading to the recent U.S. government shutdown, writes Kitco.
It’s this strife that could push gold forward, said Rennie, pointing out that a Presidential election is scheduled to take place next year. 2016’s election saw high tensions as each party tugged hard to its side. When applied to budget planning, Rennie explains how this battlesome mentality can lead to a crisis, as evidenced by the latest shutdown.
According to the article, a Democrat-led House will likely push for more expansive free health care, along with other plans that will put further strain on the already-overblown federal deficit. This, coupled with general uncertainty surrounding a high-powered election, should be enough to keep gold going upstream for some time, writes Kitco.
Westpac sees gold prices reaching $1,380 later this year, helped along by greater central bank demand and an overall renewal of investment demand. The firm sees the metal hovering around this level until the end of 2019, as the market situation slowly shifts to an even more favorable landscape.
From there, Rennie’s firm predicts that gold will edge towards $1,480 an ounce in 2020, brought to multi-year highs by exceptional fundamentals and greater risk aversion. This new environment, said Rennie, will go hand-in-hand with a weaker U.S. dollar, which the strategist noted will act as another source of long-term support for the metal. The greenback will be brought down by a rapid turnaround in Fed policy right as central banks around the world roll out tightening of their own.