SocGen's Edwards: Buy Gold to Prepare for Massive Rally
Gold is one of the most hated investments this year with the prospect that the Federal Reserve will raise interest rates and strengthen the dollar’s value. That would make bullion less viable as a hedge against inflation.
But some investors see weakness in the yellow metal as the best buying opportunity since the 1970s, when gold surged from $100 an ounce to more than $920, says Albert Edwards, head strategist at Societe Generale.
“Western central banks have set us up for an even bigger version of the 2008 great financial crisis/recession,” he writes in a July 30 report obtained by Newsmax Finance. “This time, rock-bottom interest rates and large fiscal deficits will mean only one thing: QE will be stepped up to such a pace that you will hear the roar of the printing presses from Mars. Gold is a must-have holding in that world.”
Physical Demand for Gold
By all accounts, the demand for gold remained solid in 2014. Admittedly, gold sales in 2014 were never going to be as bright compared to 2013, which showed phenomenal growth. Still, some interesting numbers surfaced.
Central banks purchased 477.5 tonnes of gold in 2014, a 17% increase over the previous year and the biggest increase in 50 years. This also marks the fifth year in a row that central banks have been net importers of gold. (Source: World Gold Council, February 12, 2015.)
On the technology side, gold demand fell to 389 tonnes, the lowest level since 2003. This is hardly a surprise and is a result of sluggish economic conditions. It’s also a pattern that will continue into 2015. That said, moribund economic growth is also one reason why investors could move back into gold.
Jewelry sales make up about half of worldwide demand for gold. Of that, roughly 56% comes from India and China. Full-year jewelry sales figures were (as expected) down year-over-year at 2,152.9 tonnes, but still above the five-year average of 2,053.0 tonnes.
Specifically, demand from India was up eight percent year-over-year at 662 tonnes, and the highest level since it began tracking sales in 1995. Interestingly, for the majority of 2014, the Indian government imposed restrictions on gold imports. With restrictions eased in 2015, there’s a really good chance demand for gold jewelry will hit another record.
Amidst a backdrop of a soaring stock market, “encouraging” economic data, and record mine production, the total supply of gold was flat at 4,278.2 tonnes in 2014. All it would take is a major event (economic, geopolitical, etc.) for gold demand to soar, changing the gold prediction in 2015 to positive.
These factors don’t even take into consideration the fact that the U.S. Department of Justice is investigating whether or not the world’s biggest banks have been manipulating silver and gold prices.
Gold Outlook for 2015
Because of all of these factors, I predict gold prices will be considerably higher next year—and will continue to trend higher in the years ahead.
With the stock markets soaring and the economy chugging along, gold has taken a back seat. All it will take for gold to come to the forefront is a good dose of reality. By that, I mean a well-deserved correction on Wall Street; this will lead to a reversal of funds out of stocks and back into gold.
Unexpected economic challenges out of China, Japan, Russia, and the eurozone could also send investors back into gold. So, too, could rising geopolitical tensions from the Middle East, Russia/Ukraine, terrorist groups, and wild cards like North Korea and Nigeria.
It’s the perfect storm for an overvalued stock market and underperforming gold prices. While many investors have turned their back on gold, the fact of the matter is that when it comes to predicting gold prices in 2015…things are just starting to get interesting.
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