We have been on record for well over a year now stating gold and silver will both begin climbing higher in 2019. It will not be a straight line up and we may actually see a stumble to the absolute lows of 2015. Both Michael Noonan and Steve Saville have both stated gold and silver could drop like a stone. It wouldn’t surprise us in the least to see this happen. If it does it will be the launch pad needed to set both metals on a course to much, much higher ground.
Over the past several years we have witnessed central bank acquisitions steadily climb higher and higher. The number of central banks acquiring gold has continued to grow as well.
Central banks from Russia to Kyrgyzstan to Poland and Hungary were all very active in the gold market during 2018. These central banks, and many others, have all either increased their acquisitions of physical gold or began new programs to increase their gold holdings. We may, over time, see some of these nations follow Russia’s lead and move away from holding Federal Reserve Notes in their official reserves. This is to say nothing of China’s gold reserves rising for first time since October 2016 to 59.56 million ounces by the end of December (1,853 metric tons) from 59.24 million ounces. Will China continue to add to their stack during 2019?
In an interview with Kitco News, John Reade, chief market strategist at the WGC said that he sees a potential for the gold market as investors will have fewer defensive assets to choose from in 2019 when economic and geopolitical uncertainty are expected to create financial market volatility. He explained that through most of 2018 investors found safety in the U.S. dollar and equity markets; however, financial market conditions are starting to look a lot different heading into 2019, he said.
“What initially looked like a short-term correction, equities now look to be entrenched in a downtrend,” he said. “When you look at the growing economic risks out there, gold starts to look pretty exciting.
“As a high quality, liquid asset, with the potential to deliver strong returns, and as an effective diversifier that works particularly well when other assets fall sharply, gold has historically proven to enhance the long-term performance of investment portfolios,” Reade said in a 2019 outlook report.
“In 2018, you could hold your nose and buy U.S. equity markets because they were performing very well. That worked well for many investors until October, but the environment has changed and now gold looks a lot more attractive,” he said. “If the economic slowdown is rapid or if risk assets fall sharply, investment flows into gold could match those seen during the 2008-2009 financial crisis.” Source – KitCo News
We also learned from Craig Hemke, Sprott Money, who is extremely optimistic about gold and silver in 2019, that he sees something akin to a “moon shot” in 2019. Not sure that I share this level of enthusiasm, but I do see both metals climbing much higher than today – quiet possibly after a severe plunge.
To put it succinctly, the year 2019 will closely resemble the year 2010 in regards to the economy, the dollar and Fed policy. Most importantly, these factors will all combine to drive gold and silver prices to their best year since 2010—when COMEX gold rose nearly 30% and COMEX silver rose by an amazing 83%! We may not be able to duplicate these gains in 2019, but we’re going to do pretty well. That’s almost certain.
And why do we say this with such confidence? Again, the answers lie in the macro-similarities to 2010. To wit:
- The U.S. economy began 2010 in a recovery mode from The Great Financial Crisis. The mainstream media banged on incessantly about “green shoots”, and GDP growth was positive. In fact, Q2 of 2010 saw GDP grow by 3.7%, Q3 was +3.0% and Q4 was +2.0%.
- The Fed had initiated the first QE program to monetize the debt in March of 2009, but it was completed in 2010. It was generally considered a one-off and a success—and also never to be needed or repeated again.
- And the dollar rose, as the U.S. economy was perceived to be recovering faster than the rest of the world. The dollar index posted a 2010 gain of 1.5%.
For the just-completed 2018:
- The U.S. economy was reported to have grown nicely, with gains of 2.2% in Q1, 4.2% in Q2 and 3.3% in Q3.
- The Fed hiked the fed funds rate every quarter to the point where this overnight rate is now at 2.50% and the full yield curve is essentially flat.
- And the dollar rose, as the U.S. was perceived to have the strongest developed economy. As mentioned above, the total gain for the dollar index in 2018 was 4.6%.
Turning back to a decade ago, the U.S. never made it to renewed prosperity in 2011. After peaking in Q2 2010, the U.S. economy began to visibly slow and the dollar began to decline with it. Similarly, a funny thing happened on the way to higher interest rates and balance sheet normalization in 2018. Just as in 2010, the U.S. economy began to slow and the dollar began to decline. Source – Sprott Money
Will these two titans of the gold and silver community be justified at years end or will the Plunge Protection Team / Fed Trading Desk work their magic and keep the metals range bound, tied up and going no where? We don’t see the “masters of the universe” being able to contain what’s coming, we do, however, see 2019 as a base building year with both metals reaching higher ground – somewhere higher but short of a “moon shot”. Central banks will continue adding to their hoard, retail investor will, slowly, return to the market giving the metals the boost they need to satisfy what I see happening in 2019. We will find out how it all plays out in a mere 10.5 – 11 months from now at which time we will look back on this material and see how it all worked out!
