This Analyst Says Gold’s Pullback is Proof that Higher Prices Are to Come

This Analyst Says Gold’s Pullback is Proof that Higher Prices Are to Come

From Birch Gold Group

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Gold has more room to run, why central banks have been buying gold for over a decade, and two massive gold nuggets worth $250,000 found in Australia.

Standard Chartered: Gold has more to show this year despite hitting a new all-time high

For a steady asset such as gold, a rapid breach of its decade-old all-time high is quite a showing. Yet, according to multiple analysts, the metal could stagger market watchers some more by the end of the year. Since blazing past $2,000, gold has pulled back as some expected, yet seems unwilling to go below the $1,940 level if the previous two weeks are any indicator.

Standard Chartered Private Bank’s Manpreet Gill attributes gold’s correction to a slight recovery in the 10-year Treasury yield amid an increase in risk sentiment. If this is indeed the reason for the pullback, the development is actually positive for gold, as the general consensus is that sovereign bond yields are on a firm downwards spiral, with no central bank showing any inclination towards elevating its benchmark rate.

“We have quite a bit of one-sided positioning in gold and I think, you know, that’s actually unwound quite quickly. A lot of our proprietary indicators are telling us exactly that,” said Gill, while acknowledging that central bankers are favoring a cap on their bond yields.

In a recent note, Fitch Solutions’ analysts likewise said that gold should keep moving up for the rest of the year and pass its August high in doing so in the absence of any notable headwinds. “We expect gold prices to remain supported in the coming months with rising geopolitical tensions and an uneven and slow global economic recovery,” said the team in the note.

Why the official sector isn’t likely to stop buying gold any time soon

Perhaps more so than any other category of investors, central banks have a long-term portfolio outlook. This explains why the official sector posted record buying figures in 2018 and 2019 as gold prices were subdued, and according to UBS Asset Management’s Max Castelli, the new price high is unlikely to act as a deterrent.

To countries like Russia and China, the likes of which have been purchasing tons of gold on a monthly basis, bullion serves as a guard against any possible deterioration of relations with the West. As recent years have shown, this caution appears to be well-rooted. As Ryan Giannotto, director of research at GraniteShares noted, many countries also turn to gold to either legitimize their currency or protect their economies against fiat erosion.

Turkey’s rapidly-depreciating lira is perhaps the best example of the latter. As the nation faces a currency crisis, its central bank has doubled its gold holdings over the past year leading up to June, bringing their gold stockpile to 583 tons.

Leigh Goehring, managing partner of natural-resources investment firm Goehring & Rozencwajg Associates, believes that there is a more overarching trend when it comes to central bank gold buying. In the simplest of terms, the official sector has grown exceptionally wary of various flare-ups around the world and is looking for a strong hedge, partly in a bid to move away from the U.S. dollar. Keeping this in mind, the combined $2 trillion in central bank bullion holdings might seem dizzying, but not at all puzzling.

Australian prospectors stumble upon two gold nuggets worth a combined $250,000

While the Discovery Channel’s “Aussie Gold Hunters” show often features some captivating finds, the latest episode stood out to many viewers. Brent Shannon and his brother-in-law Ethan West are two experienced Australian gold prospectors, with West estimating that he himself has collected thousands of small pieces of the metal over the span of four years.

After obtaining a permit to start scouring an area that they have taken a particular interest in, the pair embarked on a prospecting journey with the help of Paul West, Ethan’s father. Within hours, they stumbled upon two gold nuggets with a combined weight of 3.5 kilograms (7.7 pounds) using their standard method of excavating dirt and then going over the area with a metal detector.

Despite their experience, the team considers it one of the most remarkable finds they’ve come across, and with good reason. Together, the nuggets’ value has been estimated at $250,000 (AUD 350,000), though collectors’ appetite for such items could increase the valuation by up to 30%.

The Tarnagulla area in the state of Victoria has been a prospecting site with valuable finds since 1851. In January 2013, a prospector unearthed a 5.5 kilogram (12.1 pound) nugget buried just 23.6 inches underground, which was at the time estimated to be worth a minimum of $300,000.

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