Most price forecasts aren’t worth more than an umbrella in a hurricane. There are so many factors, so many ever-changing variables, that even the most educated guess usually misses the mark.
Further, some forecasters base their predictions on one issue. “Interest rates will rise so gold will fall.” That’s not even an accurate statement, let alone a sensible prediction (it’s the real rate that affects gold prices—the rate minus inflation).
So instead, my gold price forecast for 2020 will look at the primary factors that impact the gold market to determine if each is likely to push the price higher or lower this year. I’ll conclude with the probable prices I see based on those factors, as well as some long-term projections.
These are the primary factors that I think will impact the price of gold this year:
- The US dollar
- Investment demand
- Central bank buying
- Trading volumes on the COMEX
- Technical indicators
- New mine supply
- Coming economic and monetary factors
This will be fun, so let’s jump in!
The US Dollar
The US dollar index (DXY) ended 2019 with its smallest-ever annual move, up just 0.24%. Meanwhile, gold was up 18.8% last year.
Gold and the US dollar are inversely correlated about two-thirds of the time (when one rises the other tends to fall, and vice versa). While global investors do tend to move into the US dollar during periods of uncertainty, that move was muted last year despite, for example, the trade war with China. They instead moved into gold.
Investment Demand for Physical Gold
Demand for physical metal has been soft in the U.S. for a couple years now. But overall investment demand for gold has surged.
Holdings in gold-backed ETFs have been in a four-year uptrend, as the next chart shows. And notice the surge at the end of 2019.
Interest in gold from investors is likely to remain high this year, because the reasons they bought gold—to hedge against overvalued markets and insure against the possibility of a recession or crisis—haven’t materialized yet.
Continued ETF demand is likely to push the price of gold…
Central Bank Buying
Central banks around the world hold gold as a reserve asset. If they think they need more, they buy more.
Well, look what they’ve done since 2007.
Global central banks have been buying gold at an accelerated pace for the past 10 years, and bought even more last year. This is a strong uptrend.
The World Gold Council reports that while the pace of buying may slow, it fully expects buying to continue. And their continued accumulation is a major source of support for the gold price.
Ongoing central bank buying = a gold price that is likely to…
COMEX Trading Volumes
Meanwhile, gold-trading volumes on the COMEX have never been higher.
Traders at the world’s largest futures market are buying more gold contracts than ever before, a staunchly bullish indicator. And when you buy more than you sell, the price is driven higher.
There’s no indication heightened activity at the COMEX will stop, and if so the gold price will…
Technical Analysis Outlook
Technical analysis is not always reliable, but professional trader Dominick Graziano has amassed a seven-figure brokerage account solely from technical trading. He’s certainly not the only one that observed gold’s breakout from a 6-year trading range last year.
Many technical indicators tell Dominick to be bullish on the gold price.
In fact, he says, “In the big picture much higher gold prices will come. I’m not sure we will ever see $1,500 again, but I’m confident you’ll never see $1,400 again—if we do I’ll be buying with both hands!”
The technical outlook for 2020 says the gold price is likely to…
New Mine Supply
Most gold analysts recognize that new supply from gold producers is set to decline. The concerning thing about the coming gold supply deficit is that it doesn’t require an outside force to make it happen. It’s locked in. Further, producers can’t easily or quickly increase mine output even if gold prices jump, as you’ll see. This is something I know a little about, having worked in the industry as a mine analyst for a number of years.
Here’s a quick sense of how big the problem is. Industry group MinEx Consulting reported the following sober statistics.
- In 2012 the gold industry spent $11.8 billion on exploration. In 2019 only $4.4 billion was spent. Obviously if you spend less looking for gold, you’ll find less gold.
- In the year 2000 there were 42 major gold discoveries (one million ounce deposits or bigger). In 2019 there were only three gold discoveries.
- In 1985 the average grade of gold mined around the world was 5.17 grams per tonne of ore. In 2017 it was just 1.64 grams/tonne. This implies that the “easy” gold has already been found.
- The average cost to discover a new gold deposit 30 years ago was $53 million—now it’s $149 million, almost twice the rise in inflation.
- An estimated $30.9 billion in value was created from gold exploration between 2009 and 2018—but the industry spent $67.5 billion to find that value!
As MinEx concludes, “…the industry is struggling to replace the ounces mined. This has profound implications on the future price of gold.”
If demand rises, and new supply is falling, the gold price will respond to this basic supply/demand equation and…
Coming Economic and Monetary Factors
All of the above reasons are fine and good, but one of the primary reasons we’re overweight gold and silver at this point in history is because of the numerous elevated risks that are present. Mike reviews these in his Top 10 Reasons to Buy Gold and Silver video, which all point to a period that he believes will, sooner or later, propel gold higher.
It is this big-picture backdrop for gold that tells us why investors should buy physical bullion at this time, and why the price will ultimately end up much higher than it is now.
A couple examples of these catalysts would be the bursting of asset bubbles, or a stock market crash. We don’t know that those things will occur this year, but what’s good to know is that gold has historically risen during stock markets crashes, as well as during recessions. It’s one of the best hedges you can hold when stocks enter a bear market or the economy enters a slowdown.
If the stock market reverses or a recession sets in, the gold price is likely to…
What Could Push Gold Down
The primary things that could weigh on gold would be the stock market continuing to soar, and no increase in inflation. If those things happen and the other catalysts are subdued, then gold is likely to:
My 2020 Gold Price Prediction
You can see that in my view most of the factors that impact gold are expected to push the price higher this year.
Add it all up and my 2020 gold price outlook is:
- Minimum High: $1,700
- Potential High With No Crisis: $1,800
- Potential High With Major Crisis: $2,000 (new all-time high)
- Likelihood the $1,050 Low (12-17-15) for This Cycle Is in: 90%
- Likelihood Gold Is Higher in 2021: 95%
- Potential 5-Year High: $3,000 to $8,000
The most important message from this analysis is that even if gold rises only modestly this year, or even takes a dip, it has rarely been more important to own. That means that dips in price should be bought, especially for anyone who doesn’t hold a meaningful amount.
There are many factors, of course, that could impact the gold price in both the short and long term. To learn more simply enter your email address in the box supplied on this page.