By Chris Dieterich
The story of the year in financial markets has been gold’s underdog rally from multi-year lows.
Can it last? Heiko Ihle at Rodman & Renshaw says that yes, indeed, the rally can continue. The analyst sees a “paradigm shift in sentiment for the gold market” and outlines three factors that we feel should “not only support gold at current levels,” but “potentially continue to push prices higher going forward.” The SPDR Gold Shares (GLD) added 0.2% to $126.14 in recent trading. Here’s more: “The next bull market in precious metals and precious metal related equities has begun. Our updated price deck of $1,300 per ounce gold and $17.50 per ounce silver reflects what we believe to be the dawn of a new era.”
Reason 1: Brexit
“The generally unexpected ‘Leave’ vote by Great Britain last week sparked what we view as confirmation of gold exiting its nearly five year long bear market. On Friday, June 24, the day after Britain’s referendum, gold surged almost 5% to a two year high, bringing the year to date gain to over 20%.
Moreover, we feel the uncertainty caused by Britain’s decision to leave the European Union should have a lasting effect on both gold and the global markets as a whole. In addition to uncertainties surrounding the future of England, the entirety of the European Union could now be in question. Should additional countries contemplate leaving the EU, coupled with what we view as a loss in global central bank credibility, we think further significant gains could be in store for gold. In short, as uncertainty rises we cannot and do not rule out the possibility of even potentially revisiting longer-term highs.”
Reason 2: Interest-rate concerns will be offset by ultra-low and increasingly negative interest rates globally
“While gold is a non-interest bearing asset in a potentially rising interest rate environment, in an era of record low and even negative rates across the globe we view the metal as a preferred asset class and a haven of safety.