The rally in gold prices has recently seemed to have hit speed bumps, sparking a selloff in gold miner stocks. Not that the market has forgotten that only early this year gold prices rose to a 30-year high, but some believe gold prices have rallied enough and there is limited room for further meaningful rally. Nevertheless, the sentiment on the Wall Street is that gold prices could actually double in the next 12 months.
The U.S. Federal Reserve is gearing up to raise interest rates in December after failing to do so several times this year. A rate hike will increase the cost of borrowing, thus tempering with the supply of money in gold market as investors turn their attention to yield-bearing assets. But will the Fed keep its word on rates this time round? The jury is still out on that, but some investors believe it will and do some rate hikes in 2017.
However, the reason the Fed has failed several times to increase rates is that mixed economic data makes it difficult to hike rates. Therefore, it shouldn’t come as a surprise that December comes and the Fed decides to delay rate hike because the economy doesn’t look steady enough to withstand elevated costs of borrowing.
Worries that some central banks might be reaching limits of their easing measures have also tempered appetite for gold. If central banks begin to tighten monetary policies, the easy money that has been fuel the rally in gold market would be no more and a downturn will ensue. The European Central Bank (ECB) and Bank of Japan have notorious for pouring out money into the economy.
Brexit has been another catalyst on gold rally. However, with Britain set to begin formal exit from the European Union and with the country likely to avoid hard Brexit, some say the economic uncertainties that have propelled gold appear to be easing, thus the need to give a wide berth.
Gold could as well defy the doom predictions to double in 2017. Some economists have said that inflation momentum may surprise on the upside and that will be a boon for those with gold in their portfolio. The 1.69% expansion in the difference between 10-year U.S. bonds and Treasury Inflation Protected Securities of similar maturing this week provided a glimpse to the rising inflation. That is a development that investors need to take into account for a clue on which direction gold could be headed. The 1.69% difference between the securities was the largest since May this year.
Mixed global economic data have also temper confidence in the ability of the central banks to prop up sagging economies. In the U.S., for instance, the Fed has pushed back rate hikes on several occasions citing weak economic data. If markets reason that economic uncertainties are building up or not receding, jostling for gold may would ensure, driving up the prices of the commodity.
Gold is currently trading in the vicinity of $1,255 an ounce and there are strong reasons bullion could close higher this year. The 2016 U.S. presidential election that has been characterized by many first has produced enough political uncertainties, thus triggering demand for gold and other safe-haven assets. Weakness in oil market, a surprise outcome in the U.S. elections and continued global economic depression may push gold prices to $2,000.
How do you tap the gold benefits?
If you believe in a return to gold rally in 2017, you might want to build positions in some of the promising gold miners.
The trading volume in Bullfrog Gold Corp (OTCMKTS:BFGC) has been on the uptrend since last week. Recently, Bullfrog Gold had announced additional land acquisition next to its Bullfrog Project in Nevada. While gold and the mining end of the business remains a mystery to many investors, those who watch the markets are looking for opportunities in domestic producing areas. Bullfrog Gold Corp. is emerging as a junior gold stock with all the rights stimulus such as excellent land positions, experienced management and known domestic producing gold deposits already developed previously by majors. Looks like they have set the stage for great things on a domestic U.S gold situation that you have to see.
Barrick Gold Corporation (USA) (NYSE:ABX) stock is up more than 100% YTD, mirroring the recent rally in gold prices. During the period of depressed commodity prices, Barrick Gold took the opportunity to increase mine efficiency with the aim of boosting shareholder returns. Klondex Mines Ltd (NYSEMKT:KLDX) is another efficient gold miner capable of generating profits even if bullion prices at $800.
Newmont Mining Corp (NYSE:NEM) and Randgold Resources Ltd. (ADR) (NASDAQ:GOLD) are other well-managed gold miners that have done a great job to strengthen their balance sheets through debt reduction.
The current pullback presents an opportunity for bullish investors to build positions in gold.