This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Angelos Damaskos, manager of the Junior Gold Fund, explains why he believes that the precious metal, along with silver, is worth backing. He is now looking for the gold price to reach $1400 sometime later this year and cites not just geopolitics as a catalyst, but also the uncertain outlook for global macroeconomics. Damaskos refers to inflation especially, and says that central banks may find it hard to contain a rise in prices.
Upside risk to the gold price with multiple supporting tail winds
Economically, the world remains in a fragile state. It is clear that the action of central banks like the Federal Reserve (Fed) and the European Central Bank (ECB), each of whom have pumped trillions of euros and dollars into their each respective economies since the financial crisis of 2007-8, alongside the Bank of Japan (BoJ), which began its quantitative easing (QE) programme in 2001, have done as much as they can. But, along with the easy money strategy, governments, corporates and individuals have borrowed more and more, and will begin to feel the strain as rates begin to rise.
With this in mind, if inflation does pick up, and economists broadly acknowledge that we are all in unknown territory with what may be the effects of QE, the levels of debt mean that when rates do begin to normalise, consumers may start to close down under the burden of debt repayments.
Add to this the trade tensions, which have yet to bite and become a full blown trade war, the outlook for global economics would, indeed, appear to be in a state of flux.
So far as geopolitics are concerned, subsequent to the interview with Angelos Damaskos, the US, UK, and France joined forces in a strike in Syria and gold, which had already risen to the highs seen in January this year at around $1366, fell back, although remains supported by recent price action.
To Angelos Damaskos the risks appear to be on the upside. Here he explains to IG why owning gold and silver related stocks are the preferred way to gain exposure to any uptick in the price of precious metals, as they offer extra leverage over ownership of the underlying metal. Clearly if global politics, global trade, and the global economy improve beyond expectations, it is more likely that gold will fall out of favour, but, at the moment, there appears little reason to be cheerful.