Gold has moved higher for the year, after stalling just below the $1,300-an-ounce mark for weeks. All the factors for the metal to rally to record levels might finally be falling into place.
“Gold does well in a period of dollar weakness, inflation and economic uncertainty,” says Peter Schiff, chief global strategist for Euro Pacific Capital, a division of Alliance Global Partners. “We are about to get all three.”
Gold prices were held back by expectations that the Federal Reserve’s monetary tightening cycle would continue for years, argues Schiff. “Everyone now recognizes that the Fed is done tightening and that the bias is in the other direction, but few understand just how far and how fast [the Fed] will have to loosen monetary policy in the coming months,” he adds.
Read on Barron’s: How gold could stage a 20% rally this year
In Schiff’s view, the economy is approaching a “severe recession” that will prompt the central bank to launch another round of quantitative easing, or asset buying, to drive down interest rates. He predicts that the next round of QE will be much larger than prior ones. “Given that, gold should be rocketing upward,” he says.
Gold futures GCQ19, +0.17% settled at $1,346.10 an ounce on Friday, extending their streak of gains to an eighth straight session and up about 2.7% for the week.
For gold’s latest rise to stick, Brien Lundin, editor of Gold Newsletter, says prices will have to top $1,375. Getting past that hurdle will be difficult, he maintains, but might clear the way to $1,500 by year-end, a level not seen since April 2013.
Schiff’s price forecast is even rosier. Gold has the potential to make a “tremendous move,” he says. Gold held a tight range over the past three or four years, and held a floor of about $1,200 “despite virtually no conviction that investors currently need a hedge against inflation and a falling dollar.”
“When sentiment finally changes, gold could rocket from its currently well-established base to levels much higher than the prior highs established almost a decade ago,” Schiff says. Prices topped $1,900 an ounce in September 2011.
Picking the best way to invest in the precious metal has become more important than in the past.
People looking to establish long-term holdings in physical gold should use a combination of coins and bars, and gold certificates held off-site, says Schiff. “Access to the actual metal will always be the ultimate safety net,” he adds, while gold certificates, which indicate ownership of gold, offer much of the safety of bullion “without the storage costs and security risk.”
Gold exchange-traded funds, including the SPDR Gold Shares GLD, +0.56% offer “extreme convenience and low cost, but they are passive investment vehicles,” he says.
Investors might also consider buying gold miners’ shares. Most investors “still believe that gold will fall in the years to come, and the price of mining shares reflects that dim view,” says Schiff. VanEck Vectors Gold Miners GDX, +0.09% offers exposure to mining stocks.
There are also gold trading platforms. Goldex doesn’t own gold, but facilitates dealing at the best prices for the metal. Metal sold through Goldex is 100% backed by fully allocated physical gold, says Sylvia Carrasco, its chief executive officer. “Every gold ounce belongs to the client, from beginning to end.”
Schiff advises and invests in Goldmoney XAU, -1.35% which provides an online investment platform to buy and sell precious metals. He favors gold-backed debit cards; Goldmoney issues the Goldmoney Prepaid card.
Lundin, of Gold Newsletter, notes that gold has a “4,000-year track record of financial protection in the innumerable instances of debt/currency devaluations.” That might be another reason to get excited about the recent rally.