Gold and its proxies such as the Direxion Shares Exchange Traded Fund Trust are currently in a very sensitive position. This week is pregnant with a series of potentially market-moving events and bullion investors are feeling the weird calm that often precedes a storm. For instance, the Bank of Japan kicked of its policy meeting on Tuesday and Wall Street can expect definite word on the BOJ’s economic plan later in today’s session.
More so, the U.S. Federal Reserve FOMC policy meeting is starting today. There’s a huge upside and downside risk for the bullion based on what the Fed decides to do about interest rates. In addition, OPEC is meeting with Russia and some other producers at the sidelines of the International Energy Forum holding in Algeria. OPEC is meeting to discuss possible production caps and it would be interesting to see how gold fares after OPEC makes a decision that could lift global oil prices.
Gold bull sees prices at $1900 in the next three months
Investors in gold and Direxion Shares Exchange Traded Fund Trust might want to draw strength to take bullish bets from the optimism of Robert McEwen. McEwen is one of the most vocal gold bulls and he often put his money in the same place as his mouth. McEwen founded Goldcorp Inc. and McEwen Mining Inc. to explore his gold interests.
McEwen believes that gold has as much as 44% upside potential ahead because investors have very few reasons to be confident in the economy. He noted that U.S. presidential elections provides a good enough reason for gold to soar and that investors will book gains irrespective of a Trump or Clinton victory. He expects that the yellow will trade in a range of $1,700 an ounce to $1,900 by the end of the year.
McEwen also observes that the low-interest rate environment will trigger a bout of anxiety in investors and that gold will have a renewed safe-haven status going forward. He says, the bullion “is a currency that doesn’t have a liability attached to it… A store of value that has gone for millennia. And the big argument against gold used to be it costs you money to store it. Right now, it’s costing you money to store your cash.”
Analysts think the fed won’t raise rates this month
Nevertheless, gold has started booking gains ahead of the Federal Reserve policy meeting and it seems that there is a tacit understanding in the market that the fed won’t increase interest rates. On Tuesday, Gold for December delivery was up $0.40 to close at $1,318.290. The Direxion Shares Exchange Traded Fund Trust didn’t book gains during the session but it has already scored 0.25% in pre-market trading.
To start with, Ilya Spivak, currency strategist at Daily FX notes that “the U.S. central bank is not expected to issue a rate hike this time around but hawkish guidance in the press conference, policy statement and economic forecasts released following the outing may set the stage for tightening in December.” He noted that the failure of the Fed to raise interest rates will boost the prospects of the yellow metal.
More so, UBS strategist Joni Teves observed that “we believe the rationale for holding gold within a portfolio amid an environment of depressed yields, sluggish global growth and heightened macro uncertainty remains intact, and our conversations with investors have not provided indications that this view has changed.”