Gold Price Prediction Bucks Some of the Gold Permabears on Wall Street
A renowned precious metals analyst is out with his gold price prediction for the next six months. Michael Dudas of Vertical Research Solutions, LLC is stating his case for a 10% higher gold price before year’s end. This is welcome news for a sector stuck with its fair share of “permabear” prognosticators. They are few and far between on Wall Street.
Dudas’s main arguments for higher gold prices center on a usual argument: declining mine supply. There’s no question that the phenomenon of “peak gold” is real. It’s a topic extensively talked about by industry experts and Wall Street analysts alike.
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Almost all of the easily-accessible gold stocks have been mined, and significant ore bodies remain undiscovered because nobody has any financial incentive to look for them. With gold prices languishing at these levels, opening new mines is a losing proposition, considering the huge capital expenditures involved. “We’re going to see a 5 to 15 percent decline in gold supply over the next years because of the bear market and lack of capital spending,” said Dudas. (Source: This hammered precious metal could surge 10 percent within months: Analyst, CNBC, July 12, 2017).
It’s interesting that Dudas sees the possibility of a regional paradigm developing in gold prices. With declining output by producers, and supply being increasingly hoarded in Asia, access in the West may be impeded. If correct, it could mean that spot bullion prices rise faster on this side of the Pacific.
Gold Prices Likely to Hit $1,350/ounce in Next Six Months
The catalyst for higher prices—shortages in mine supply—are legitimate. But the question becomes: “will constraints be recognized in the short term?” Often, commodity supply constraints provide long-term support for prices, but not necessarily in the short term. To answer this question, we turn to the price technicals.
Dudas believes that the key to a $1,300–$1,350/ounce gold price forecast 2017 lies in the charts. If prices can hold in the lower $1,200s for now, higher prices are inevitable later. In Dudas’s words, “We can find the bottom here around $1,205–$1,210. I think the $1,240–$1,245 level is not unreasonable.” (Source: Ibid).
Now that gold prices today have reached that area (around $1,242 per ounce as of this writing), this could be the stepping stone to building price momentum.
Recent performance aside, gold is still facing the headwinds of rising interest rates and an economy that’s still growing. Historically, that hasn’t been the best time to own gold. But we’re getting closer. Gold price history tells us that the best time to own gold is when the economy is coming out of a recession; when economic fear and debt-related stories are dominating the news cycle.
Gold has returned explosive capital gains in the years following the tech bubble and U.S. housing bubble. It was only once the recovery was well underway that prices languished. I expect the same dynamics to play out after the next recession hits, but that is still many months away. With the credit bubble bigger than ever, there has never been a better reason to own gold. But that won’t be fully realized until the next crisis hits.
For now, most investors would gladly accept a 10% return on an investment for six months “work.” The explosive post-recessionary gains won’t be visiting us in 2017, but double-digit gains in gold prices would certainly be a great precursor.
