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GLD: Why Gold Is Headed For $3000



  • Gold tumbled to negative on the year due to liquidation-driven selling alongside broader markets and Treasuries.
  • Seasonal weakness and lopsidedly long positioning in large speculators have added to near-term pressure on gold.
  • A ballooning Fed balance sheet and federal deficit vs. GDP suggest breakout to new all-time highs in gold is on the horizon.
  • We reckon any dips would be great buying opportunities to build a long-term position in gold.

The wrath of the margin call selling spared no one, as safe havens including gold (GLD) and Treasuries (TLT) were also dumped during the epic collapse of the stock market. Particularly for gold, the slump wiped out 7+% year-to-date gains and turned negative within a matter of 2 weeks.

Source: WingCapital Investments

"Cash is king" became the predominant theme with the U.S. dollar (UUP) index on the verge of breaking above multi-year high.

Source: WingCapital Investments

Until recently, gold had been able to rally in tandem with the U.S. dollar as pointed out in the previous article, though the liquidation-driven chain-selling proved too much to overcome for the precious metal. From a bigger picture, gold remains on a long-term recovery uptrend since bottoming in 2016 and found support at its rising 50-week moving average.

Short-Term Headwinds Remain

Before getting to the bullish factors, we will provide an update on the two headwinds that have piled downward pressure on gold recently. First is the net positioning of large speculators, who started trimming their lopsidedly long positions in gold futures on the heels of the margin call sell-off, but still have ways to go before normalizing to more moderate levels.

Source: Commitment of Traders

Seasonality remains negative for gold in the short-term, as gold historically tends to trend lower into the summer according to EquityClock. Thus far, the seasonal chart has been spot on in terms of forecasting the February high.

Image result for gold seasonality

Source: EquityClock

Gold's Long-Term Prospect Is Brighter Than Ever As Fed Goes Nuclear

As discussed in our last article, despite the possibility of a short-term top, we advocated taking a long-term bullish view on gold based on the two premises that the Treasury yield curve has re-inverted while the Fed's balance sheet is about to expand again. Actually on the latter,

This article was written by

Quantitative Strategies utilizing Empirical Analysis, Pattern Recognition and Statistical Arbitrage techniques. Identifies high-probability long/short opportunities with short-medium term horizon in large caps, ETFs, commodities and FX. Macro Commentary and Market Research.

Analyst’s Disclosure: I am/we are long XAUUSD:CUR. 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.

We may have intraday options, futures or other derivative positions in the above tickers mentioned.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (42)

Paul T. Lambert profile picture
Why ask why when the reasons are invalidated by the wild card of paper derivatives and no-gold selling of fake gold to control pricing? For anyone familiar with the epic sci-fi Foundation series, psychohistory is the analogue of the reasoning used in this article. Unfortunately, there is also an analogue of the Mule, and that would be Wall Street banksters, the Fed and TPTB combined.
OptUndrWrtr profile picture
@WingCapital Investments. thanks for the article.

I have some questions: The Italy, Russia, and the US are top 10 countries with regard to gold reserves. Italy needs a bailout, Russia will struggle with low oil prices, and for all the reasons stated in the article, the US could draw down their gold holdings. Won't that be a bit of a headwind for gold prices?

Also I'm not clear of when you are saying the $3000 target price will be reached. In 3 years?
WingCapital Investments profile picture
We have not considered the dynamic of countries needing to sell, but we believe short-term supply should be absorbed by increased demand. In the case U.S. needs to sell gold, the USD may plunge as well leading to higher gold prices. If we look back in the post-recessions during 2003 and 2009, gold doubled its price in 3 years. That puts 2023 for our price target assuming we start recovering sometime this year.
Thor 11, what do you think? First thing I would imagine is that it will be used to satisfy pent up demand. Initially many commodities will be much cheaper and offset the dilution caused by the virtual printing of money, I suspect there will be an inflationary rise after that and interest rates will rise. Whether or not that is an orderly process will depend on how it is managed. One thing is obvious, if government action forcibly shuts down the economy to save lives, it must compensate to alleviate the instant economic dislocation of its citizens. It is a trade off that has difficulties either way, but not dealing with an immediate crisis out of the fear that another is possible isn’t an alternative.
constable profile picture
Hi. I am naive about gold / gold miners ETFs. If GDX is not good (why not?), what alternatives do you suggest. Thanks.
WingCapital Investments profile picture
GDX has not been a good long-term hold because of many of its holdings with mismanagement and weak earnings dragging down the performance. @iacmw had posted some good suggestions - would recommend scrolling down to see his post.
Not going to happen. As soon as this pandemic is controlled, money will coming roaring back into the market, because with zero interest rates there is no other place other than real estate to make money.
Renov8 profile picture
Famous last words...as soon as this pandemic is "controlled". Meanwhile, everyone and their mother is not paying rent, collecting a paycheck and the gov is sending helicopter money to everyone. Mortgages are being put on hold...what other stupid, great ideas are we going to propose next?
Old Wizard, on the other hand what happens when all the money that's been pumped into the economy and around the world ends up coming back here?
Expand, do you personally forecast the pandemic will go uncontrolled forever? I’m confused
Analytical Investors profile picture
I have analyzed a small near production Junior, Winston Gold WGMCF (seekingalpha.com/...). In the Monte Carlo analysis I use a gold price range of US$1280 to US$1600 and get an estimated share price increase of 7x (with 90% confidence).

Just for fun I put in a gold price range of US$2,000 to US$3,000 and get an estimated share price increase of 18x (with 90% confidence).

Here is the analysis for today's gold prices. seekingalpha.com/...
WingCapital Investments profile picture
Interesting read. Thanks for sharing. Certain gold miner names do seem to have exponential upside potential if the breakout in gold plays out.
Highly leveraged.
Great going up...
Horrid going down...
Been long Winston for what seems like forever from .11. Hope they turn some profit soon.
27 Mar. 2020
I agree with the long term vision and even with one of the comments proposing 1800 or 2000 forecast for year-end. I see gold as insurance with good chances of being far more than that in the long run. In the more short/middle run 2020 -2023 I think we can see bigger gains in other asset classes. What do you think? Do you have any particular thoughts on what could be the big winners in a shorter period of time?
WingCapital Investments profile picture
Our previous forecast was for 20% in a year which would also put gold in the 1800-2000 range. If gold is able to break out above all-time highs, we anticipate the momentum will carry gold to 3000 within 3 years similar to past post-crisis breakout patterns (2009~ and 2003~). Stock market may provide more attractive short-term gains with these massive bear market rallies, but we do not believe it's a trivial V-shape recovery. What are your thoughts?
Gold strongly negatively correlated with real interest rates. Those are dropping through floor. Gold also strongly correlated to budget deficits. Those are exploding. Gold is already a great momentum trade in many countries, at new highs in most currencies. Gold being accumulated by central banks. USD likely to fall which should help. Only big negative is China and India consumers are on the back foot.

Gold miners trading very low multiple of cash flow as gold price - AISC. So, gold miners seem like a no brainer.

I started buying gold miners in late 2018. Ramped it up *bigly* this year as I took the vast majority of my long vol profits this year and put them into gold stocks. Been great so far.

I keep trying to find holes in my thesis but there just aren't that many. Have to be careful on implementation as there are a lot of crap gold miners and managements.
WingCapital Investments profile picture
Indeed gold already broke out against most currencies, and the multi-year consolidation vs. USD is looking more bullish by the day. Gold miners are tricky as witnessed in GDX which has been no better than a short-term trading vehicle. Got to pick em right.
Gunne profile picture
Your only big negative isn't even that big of a negative imo.
It's probably the reason why actions are now being taken against precious metals fraud by the US government.

When France drained the US of its gold, it was stopped by Nixon.
Nowadays gold is flowing to the East at a fast pace.


source : goldchartsrus.com

This is likely not allowed to go on, once again.
I personally wouldn't buy GDX for more than a trade. I have 2 really good sources for learning how to make gold stock investments:

1) Gold Stock Analyst. A great newsletter I bought lifetime subscription for $6,000. Paid for itself hundreds of times over. Can download all of the back issues and study them and their success and failures to learn how to become a good gold stock investor.

2) Eric Sprott's podcast and youtube videos. Free. Best junoir gold miner investor of all time IMO. He tells you exactly how he does it. Listen/watch all of them. Fast forward through the fluff. You can't get the warrants he gets but you can copy his method.
lshiang profile picture
Gold does not have momentum to take off with high unemployment rate and low inflation, although its long-term trend will head higher with QE Infinity.
Gunne profile picture
Is low inflation here forever? It's becoming more and more clear that the time of asset inflation doesn't benefit the real economy all that much.
It benefits Wall Street far more than Main Street.

With low interest rates already around the world we're likely to enter a new phase with direct fiscal stimulus to Main Street. This would be inflationary.
Renov8 profile picture
The set up is just getting started...think perfect storm in a life raft.
WingCapital Investments profile picture
Glad you brought up inflation. When the pent-up demand kicks in from the massive monetary+fiscal stimulus, the era of persistently low inflation and interest rates may finally come to an end like Gunne said.
Gold is looking strong against a variety of currencies and has hit all-time highs against sterling, the yen and the euro in 2020. Bullion just had a terrific run against the pound, rising 12% over six sessions by the close on Tuesday and reaching a new record high above £1,396/oz.

IMV even before the coronavirus came along, there was a good argument for currencies to continue depreciating as a group against precious metals over the longer term. That seems even more likely now, given all of the measures that have been announced by governments and central banks in response to the Covid-19 outbreak.
Ben Gee profile picture
Gold is headed for $3000, by 2035-2040.
OneCitizen profile picture
Exactly. If I could only get 5$ every time I hear that , I’d be a multi-millionaire
WingCapital Investments profile picture
Happy to send you a postcard in 2035 with the price of gold at that time
Renov8 profile picture
This will be the last time I hear it, cause this time I am acting on it. Go big or go home. If you can't see the forest for the trees, you are going to miss on this and other opportunities.
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