The gold bulls are certainly coming out of the woodwork as the yellow metal continues to show strength. The latest to go on record with a positive assessment of where precious metals prices are headed is Blanchard & Company CEO, David Beahm, although it should be recognised his company is hardly a disinterested party. (The company claims to be the largest and most respected retailer of precious metals and American rare coins in the USA, so its CEO's opinions do carry some weight with years of experience in dealing in the physical end of the sector.) For a full note on Beahm's opinions on gold see: Gold and silver prices to continue higher through 2016: BLANCHARD.
Beahm points to a 30-year record price increase for gold in Q1 this year, and sees this trend continuing, with gold dragging silver up alongside it - perhaps on something of a slingshot given the latter tends to perform better than gold in a rising precious metals scenario. Indeed silver has been the best performing hard asset so far this year with the gold:silver ratio (GSR) coming down from around 83 in March to around 72.5 at present. (The lower the ratio the better silver is performing vis-a-vis gold.)
US GDP growth appears weak - certainly weaker than the Fed would like it to be - while consumer spending appears to be decreasing. The Financial Times reports as follows: "The world's most important economy expanded at an annualised rate of 0.5 per cent in the first quarter, down from a 1.4 per cent pace in the final three months of 2015. That compared with Wall Street estimates of 0.7 per cent." See: US economic growth cools in first quarter.
Beahm himself notes that "Consumer spending accounts for two-thirds of America's total GDP, but through the first quarter of 2016 it is about one-third less than predictions for the year and well below its performance in 2015. This is not a sign that the economy is flourishing - quite the contrary in fact." He thus sees troubling times ahead for U.S. investors and reckons that they will be looking for more stable assets, with the implication that equities markets are vulnerable, particularly in the light of poor corporate performance in the wake of disappointing growth prospects and potential fall in consumer activity.
Others in the bull camp would seem to agree. Jeff Nichols of American Precious Metals Advisors who used to be cautiously bullish on gold prices is now a self-confessed super-bull. In his latest Nicholsongold.com letter he is looking for gold to match, or exceed, its 2011 spot price high of $1,924 an ounce and perhaps reach two to three times that level by the end of the decade.
But there are plenty of others of this viewpoint too, but perhaps their opinions should be discounted as they have always been of the bullish persuasion and will not change their spots regardless.
There is a host of factors the gold bulls will point to which they see as supporting their case, although some of these may not be quite as positive as they make them out to be, at least in the short to medium term. Asian demand is seen as a key factor, although according to latest data from GFMS this looks to have turned down sharply in Q1 this year. Mine supply has probably plateaued, but scrap supply could start rising again at recent higher prices.
Central Bank buying, and its likely continuation, is seen as another plank in the bull platform, but it should also be recognized that the vast majority of this is from two countries only - Russia and China - with little sign of many others following suit, at least as yet. Should either Russia or China curtail their buying programs then this would put a big dent in this element of demand.
Negative or Zero real interest rates which are being inflicted on an increasingly large slice of the global population are important. Always one of the biggest arguments against gold as an investment is that it bears no interest, but no interest is way better than negative interest!
But gold's naysayers are still very vocal and include some very smart economists and bankers (as does the pro-gold element one should add). Again one should probably discount the views of the gold is a 'barbarous relic' or 'pet rock' brigade - they have their own committed assessments that gold is of no use in this day and age and will be unlikely to change them, despite history pointing to the contrary and much of the world having the powerful image of gold as a key attribute of wealth instilled in them from their mothers' knees through fairy tale and legend. But others like Jeffrey Currie of Goldman Sachs are seemingly convinced that gold is headed downwards as the U.S. economy picks up and the Fed does start to implement rate increases. He obviously has more confidence in the Fed than much of the analytical sector. Others think he is out of touch with the current markets, But he did issue a call to sell gold short in mid-February - a bad call on gold's performance so far - but his opinions, and the Goldman Sachs name, will carry a lot of weight in some areas of the financial community so they should not be ignored. See: Goldman Sachs Says It's Time to Short Gold. There's still plenty of time for him to be right.
Could gold stutter after its very positive start to the year? Yes, definitely. May to September over the years has tended to see gold prices weaken - the old 'sell in May and go away' adage applies as much to gold as to general equities. Gold followers will probably be well aware that the price surged at the beginning of 2014 and 2015 too, but then reversed and fell back sharply. However this year's rally has been for far longer already so there is the growing belief that in essence it is sustainable, albeit could yet be prone to perhaps more limited setbacks. It would seem to have a lot going for it, not least something of a change in sentiment towards it within the high worth investment community.
Nichols points to a number of factors in his newsletter, many of which haven't changed over the years but become perhaps more and more relevant as time goes by. These include the movement of physical gold from weaker hands in the West to stronger hands in the East from which it is unlikely to be liquidated barring some enormous financial catastrophe. This is likely to continue due to population growth and the huge rise in numbers of the Asian wealthy and middle classes which all have a propensity towards holding gold as both a safe haven asset and a store of wealth in general. This is reducing readily available Western inventories which is already having an impact on supply availability.
Continuing stimulative economic policies by the world's central banks in the light of secular stagnation, which will keep interest rates low to negative for the foreseeable future is another point he makes, while there continues to be a significant element of geopolitical and geo-economic risk which will continue to keep safe haven demand ticking along.
Blanchard's Beahm also noted on the negative interest rate scenario that the global attempt to re-energize economies using negative rates is going to fail investors, with the outlook for savers being particularly bleak. "As governments consider the idea of negative rates, investors should realize there is a distinct possibility that this may be a stimulus effort of last resort as economies slow down. Precious metals are the right investment diversifier to protect wealth when inflation increases and the economy gets volatile," he says.
So where does all this sometimes conflicting opinion leave us? At the moment gold has picked up some momentum - and silver has performed even better over the past few weeks. Investors may be a little more nervous about continuing price prospects - its notable that the surge of buying into the gold ETFs came to something of a halt a couple of weeks ago and hasn't started to pick up again despite a reasonable gold price performance of late. Some of gold's fundamentals are not looking quite so positive at the moment, but there's a seasonal effect here. We wouldn't be too surprised to see gold fall back to $1,200 or even a little lower over the summer, but that could leave it poised for a pick up again late Q3 and into Q4 particularly if a steady, or slightly lower, price, coupled with Indian jewelry demand picking up, boosts Asian demand. Cautiously positive would be the way we view things at the moment.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.