Buying (Going Long) Gold Futures to Profit from a Rise in Gold Prices

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Contents

The Beginner’s Guide to Investing in Gold

Here’s everything you need to know about how to invest in this precious metal.

Imagine yourself sitting in a stream swirling water in a pan, desperately hoping to see a small yellow glint of gold and dreaming of striking it rich. America has come a long way since the early 1850s, but gold still holds a prominent place in our global economy today. Here’s a comprehensive introduction to gold, from why it’s valuable and how we obtain it to how to invest in it, the risks and benefits of each approach, and advice on where beginners should start.

Why is gold valuable?

In ancient times, gold’s malleability and luster led to its use in jewelry and early coins. It was also hard to dig gold out of the ground — and the more difficult something is to obtain, the higher it is valued.

Over time, humans began using the precious metal as a way to facilitate trade and accumulate and store wealth. In fact, early paper currencies were generally backed by gold, with every printed bill corresponding to an amount of gold held in a vault somewhere for which it could, technically, be exchanged (this rarely happened). This approach to paper money lasted well into the 20th century. Nowadays, modern currencies are largely fiat currencies, so the link between gold and paper money has long been broken. However, people still love the yellow metal.

Where does demand for gold come from?

The largest demand industry by far is jewelry, which accounts for around 50% of gold demand. Another 40% comes from direct physical investment in gold, including that used to create coins, bullion, medals, and gold bars. (Bullion is a gold bar or coin stamped with the amount of gold it contains and the gold’s purity. It is different than numismatic coins, collectibles that trade based on demand for the specific type of coin rather than its gold content.)

Investors in physical gold include individuals, central banks, and, more recently, exchange-traded funds that purchase gold on behalf of others. Gold is often viewed as a “safe-haven” investment. If paper money were to suddenly become worthless, the world would have to fall back on something of value to facilitate trade. This is one of the reasons that investors tend to push up the price of gold when financial markets are volatile.

Since gold is a good conductor of electricity, the remaining demand for gold comes from industry, for use in things such as dentistry, heat shields, and tech gadgets.

How is the price of gold determined?

Gold is a commodity that trades based on supply and demand. The interplay between supply and demand ultimately determines what the spot price of gold is at any given time.

The demand for jewelry is fairly constant, though economic downturns do, obviously, lead to some temporary reductions in demand from this industry. The demand from investors, including central banks, however, tends to inversely track the economy and investor sentiment. When investors are worried about the economy, they often buy gold, and based on the increase in demand, push its price higher. You can keep track of gold’s ups and downs at the website of the World Gold Council, an industry trade group backed by some of the largest gold miners in the world.

How much gold is there?

Gold is actually quite plentiful in nature but is difficult to extract. For example, seawater contains gold — but in such small quantities it would cost more to extract than the gold would be worth. So there is a big difference between the availability of gold and how much gold there is in the world. The World Gold Council estimates that there are about 190,000 metric tons of gold above ground being used today and roughly 54,000 metric tons of gold that can be economically extracted from the Earth using current technology. Advances in extraction methods or materially higher gold prices could shift that number. Gold has been discovered near undersea thermal vents in quantities that suggest it might be worth extracting if prices rose high enough.

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Image source: Getty Images.

How do we get gold?

Although panning for gold was a common practice during the California Gold Rush, nowadays it is mined from the ground. While gold can be found by itself, it’s far more commonly found along with other metals, including silver and copper. Thus, a miner may actually produce gold as a by-product of its other mining efforts.

Miners begin by finding a place where they believe gold is located in large enough quantities that it can be economically obtained. Then local governments and agencies have to grant the company permission to build and operate a mine. Developing a mine is a dangerous, expensive, and time-consuming process with little to no economic return until the mine is finally operational — which often takes a decade or more from start to finish.

How well does gold hold its value in a downturn?

The answer depends partly on how you invest in gold, but a quick look at gold prices relative to stock prices during the bear market of the 2007-2009 recession provides a telling example.

Between Nov. 30, 2007, and June 1, 2009, the S&P 500 index fell 36%. The price of gold, on the other hand, rose 25%. This is the most recent example of a material and prolonged stock downturn, but it’s also a particularly dramatic one because, at the time, there were very rea­l concerns about the viability of the global financial system.

When capital markets are in turmoil, gold often performs relatively well as investors seek out safe-haven investments.

Ways to invest in gold

Here are all the ways you can invest in gold, from owning the actual metal to investing in companies that finance gold miners.

Investment Option Pros Cons Examples
Jewelry
  • Easy to acquire
  • High markups
  • Questionable resale value
  • Just about any piece of gold jewelry with sufficient gold content (generally 14k or higher)
Physical gold
  • Direct exposure
  • Tangible ownership
  • Markups
  • No upside beyond gold price changes
  • Storage
  • Can be difficult to liquidate
  • Collectible coins
  • Bullion (noncollectible gold bars and coins)
Gold certificates
  • Direct exposure
  • No need to own physical gold
  • Only as good as the company that backs them
  • Only a few companies issue them
  • Largely illiquid
  • Perth Mint Certificates
Gold ETFs
  • Direct exposure
  • Highly liquid
  • Fees
  • No upside beyond gold price changes
  • SPDR Gold Shares (NYSEMKT: GLD)
Futures contracts
  • Little up-front capital required to control a large amount of gold
  • Highly liquid
  • Indirect gold exposure
  • Highly leveraged
  • Contracts are time-limited
  • Futures contracts from the Chicago Mercantile Exchange (constantly updating as old contracts expire)
Gold mining stocks
  • Upside from mine development
  • Usually tracks gold prices
  • Indirect gold exposure
  • Mine operating risks
  • Exposure to other commodities
  • Barrick Gold (NYSE: ABX)
  • Goldcorp (NYSE: GG)
  • Newmont Goldcorp (NYSE: NEM)
Gold mining-focused mutual funds and ETFs
  • Diversification
  • Upside from mine development
  • Usually tracks gold prices
  • Indirect gold exposure
  • Mine operating risks
  • Exposure to other commodities
  • Fidelity Select Gold Portfolio (NASDAQMUTFUND: FSAGX)
  • VanEck Vectors Gold Miners ETF (NYSEMKT: GDX)
  • VanEck Vectors Junior Gold Miners ETF (NYSEMKT: GDXJ)
Streaming and royalty
companies
  • Diversification
  • Upside from mine development
  • Usually tracks gold prices
  • Consistent wide margins
  • Indirect gold exposure
  • Mine operating risks
  • Exposure to other commodities

  • Wheaton Precious Metals (NYSE: WPM)
  • Royal Gold (NASDAQ: RGLD)
  • Franco-Nevada (NYSE: FNV)

Jewelry

The markups in the jewelry industry make this a bad option for investing in gold. Once you’ve bought it, its resale value is likely to fall materially. This also assumes you’re talking about gold jewelry of at least 10 karat. (Pure gold is 24 karat.) Extremely expensive jewelry may hold its value, but more because it is a collector’s item than because of its gold content.

Bullion, bars, and coins

These are the best option for owning physical gold. However, there are markups to consider. The money it takes to turn raw gold into a coin is often passed on to the end customer. Also, most coin dealers will add a markup to their prices to compensate them for acting as middlemen. Perhaps the best option for most investors looking to own physical gold is to buy gold bullion directly from the U.S. Mint, so you know you are dealing with a reputable dealer.

Then you have to store the gold you’ve purchased. That could mean renting a safe deposit box from the local bank, where you could end up paying an ongoing cost for storage. Selling, meanwhile, can be difficult since you have to bring your gold to a dealer, who may offer you a price that’s below the current spot price.

Gold certificates

Another way to get direct exposure to gold without physically owning it, gold certificates are notes issued by a company that owns gold. These notes are usually for unallocated gold, meaning there’s no specific gold associated with the certificate, but the company says it has enough to back all outstanding certificates. You can buy allocated gold certificates, but the costs are higher. The big problem here is that the certificates are really only as good as the company backing them, sort of like banks before FDIC insurance was created. This is why one of the most desirable options for gold certificates is the Perth Mint, which is backed by the government of Western Australia. That said, if you’re going to simply buy a paper representation of gold, you might want to consider exchange-traded funds instead.

Exchange-traded funds

If you don’t particularly care about holding the gold you own but want direct exposure to the metal, then an exchange-traded fund (ETF) like SPDR Gold Shares is probably the way to go. This fund directly purchases gold on behalf of its shareholders. You’ll likely have to pay a commission to trade an ETF, and there will be a management fee (SPDR Gold Share’s expense ratio is 0.40%), but you’ll benefit from a liquid asset that invests directly in gold coins, bullion, and bars.

Futures contracts

Another way to own gold indirectly, futures contracts are a highly leveraged and risky choice that is inappropriate for beginners. Even experienced investors should think twice here. Essentially, a futures contract is an agreement between a buyer and a seller to exchange a specified amount of gold at a specified future date and price. As gold prices move up and down, the value of the contract fluctuates, with the accounts of the seller and buyer adjusted accordingly. Futures contracts are generally traded on exchanges, so you’d need to talk to your broker to see if it supports them.

The biggest problem: Futures contracts are usually bought with only a small fraction of the total contract cost. For example, an investor might only have to put down 20% of the full cost of the gold controlled by the contract. This creates leverage, which increases an investor’s potential gains — and losses. And since contracts have specific end dates, you can’t simply hold on to a losing position and hope it rebounds. Futures contracts are a complex and time-consuming investment that can materially amplify gains and losses. Although they are an option, they are high-risk and not recommended for beginners.

Gold mining stocks

One major issue with a direct investment in gold is that there’s no growth potential. An ounce of gold today will be the same ounce of gold 100 years from now. That’s one of the key reasons famed investor Warren Buffett doesn’t like gold — it is, essentially, an unproductive asset.

This is why some investors turn to mining stocks. Their prices tend to follow the prices of the commodities on which they focus; however, because miners are running businesses that can expand over time, investors can benefit from increasing production. This can provide upside that owning physical gold never will.

However, running a business also comes with the accompanying risks. Mines don’t always produce as much gold as expected, workers sometimes go on strike, and disasters like a mine collapse or deadly gas leak can halt production and even cost lives. All in all, gold miners can perform better or worse than gold — depending on what’s going on at that particular miner.

In addition, most gold miners produce more than just gold. That’s a function of the way gold is found in nature, as well as diversification decisions on the part of the mining company’s management. If you’re looking for a diversified investment in precious and semiprecious metals, then a miner that produces more than just gold could be seen as a net positive. However, if what you really want is pure gold exposure, every ounce of a different metal that a miner pulls from the ground simply dilutes your gold exposure.

Potential investors should pay close attention to a company’s mining costs, existing mine portfolio, and expansion opportunities at both existing and new assets when deciding on which gold mining stocks to buy.

Mining-focused ETFs

If you’re looking for a single investment that provides broadly diversified exposure to gold miners, then low-cost index-based ETFs like VanEck Vectors Gold Miners ETF and VanEck Vectors Junior Gold Miners ETF are a good option. Both also have exposure to other metals, but the latter focuses on smaller miners; their expense ratios are 0.53% and 0.54%, respectively.

As you research gold ETFs, look closely at the index being tracked, paying particular attention to how it is constructed, the weighting approach, and when and how it gets rebalanced. All are important pieces of information that are easy to overlook when you assume that a simple ETF name will translate into a simple investment approach.

Mutual funds

Investors who prefer the idea of owning mining stocks over direct gold exposure can effectively own a portfolio of miners by investing in a mutual fund. This saves the legwork of researching the various mining options and is a simple way to create a diversified portfolio of mining stocks with a single investment. There are a lot of options here, with most major mutual fund houses offering open-end funds that invest in gold miners, such as the Fidelity Select Gold Portfolio and Vanguard Precious Metals Fund.

However, as the Vanguard fund’s name implies, you are likely to find a fund’s portfolio contains exposure to miners that deal with precious, semiprecious, and base metals other than gold. That’s not materially different from owning mining stocks directly, but you should keep this factor in mind, because not all fund names make this clear. (For example, the Fidelity Select Gold Portfolio also invests in companies that mine silver and other precious metals.)

Fees for actively managed funds, meanwhile, can be materially higher than those of index-based products. You’ll want to read a fund’s prospectus to get a better handle on its investing approach, whether it is actively managed or a passive index fund, and its cost structure. Note that expense ratios can vary greatly between funds.

Also, when you buy shares of an actively managed mutual fund, you are trusting that the fund managers can invest profitably on your behalf. That doesn’t always work out as planned.

Streaming and royalty companies

For most investors, buying stock in a streaming and royalty company is probably the best all-around option for investing in gold. These companies provide miners with cash up front for the right to buy gold and other metals from specific mines at reduced rates in the future. They are like specialty finance companies that get paid in gold, allowing them to avoid many of the headaches and risks associated with running a mine.

Benefits of such companies includes widely diversified portfolios, contractually built-in low prices that lead to wide margins in good years and bad, and exposure to gold price changes (since streaming companies make money by selling the gold they buy from the miners). That said, none of the major streaming companies has a pure gold portfolio, with silver the most common added exposure. (Franco-Nevada, the largest streaming and royalty company, also has exposure to oil and gas drilling.) So you’ll need to do a little homework to fully understand what commodity exposures you’ll get from your investment. And while streaming companies avoid many of the risks of running a mine, they don’t completely sidestep them: If a mine isn’t producing any gold, there’s nothing for a streaming company to buy.

The built-in wide margins that result from the streaming approach provide an important buffer for these businesses. That has allowed the profitability of streamers to hold up better than miners’ when gold prices are falling. This is the key factor that gives streaming companies an edge as an investment. They provide exposure to gold, they offer growth potential via the investment in new mines, and their wide margins through the cycle provide some downside protection when gold prices fall. That combination is hard to beat.

What’s the best way for a beginner to invest in gold?

There’s no perfect way to own gold: Each option comes with trade-offs. That said, probably the best strategy for most people is to buy stock in streaming and royalty companies. However, what to invest in is just one piece of the puzzle: There are other factors that you need to consider.

How much should you invest in gold?

Gold can be a volatile investment, so you shouldn’t put a large amount of your assets into it — it’s best to keep it to less than 10% of your overall stock portfolio. The real benefit, for new and experienced investors alike, comes from the diversification that gold can offer. Once you’ve built your gold position, make sure to periodically balance your portfolio so that your relative exposure to it remains the same.

When should you buy gold?

It’s best to buy small amounts over time. When gold prices are high, the price of gold-related stocks rises as well. That can mean lackluster returns in the near term, but it doesn’t diminish the benefit over the long term of holding gold to diversify your portfolio. By buying a little at a time, you can dollar-cost average into the position.

As with any investment, there’s no one-size-fits-all answer for how you should invest in gold. But armed with the knowledge of how the gold industry works, what each type of investment entails, and what to consider when weighing your options, you can make the decision that’s right for you.

Three Reasons to Invest in Gold According to Research

Why Is Gold So Valuable?

Investors buy gold as for one of three reasons: a hedge, a safe haven, or a direct investment. Which of these is the best reason? Research says that gold is the best hedge against a stock market crash.

Gold as a Hedge

Hedges are investments that offset losses in another asset class. Many investors buy gold to hedge against the decline of a currency, usually the U.S. dollar. As a currency falls, it creates higher prices in imports and inflation. As a result, gold is also a defense against inflation.

For example, the price of gold more than doubled between 2002 and 2007, from $347.20 to $833.75 an ounce. That’s because the dollar’s value as measured against the euro fell 40% during that same period.

In 2008, despite the financial crisis, some investors continued to hedge against a dollar decline caused by two new factors. One was the quantitative easing program launched in December 2008. In that program, the Federal Reserve exchanged credit for bank Treasurys. The Fed simply created the credit out of thin air. Investors were concerned this increase in the money supply would create inflation.

The other was record-level deficit spending that drove the debt-to-GDP ratio above the critical 77% level. That expansionary fiscal policy could create inflation. The increase in the nation’s debt could also cause the dollar to decline.

Research done by Trinity College found that gold is the best hedge against a potential stock market crash.

For 15 days after a crash, gold prices increased dramatically. Frightened investors panicked, sold their stocks and bought gold. After that, gold prices lost value against rebounding stock prices. Investors moved money back into stocks to take advantage of their lower prices. Those who held onto gold past the 15 days began losing money.

Gold as a Safe Haven

A safe haven protects investors against a possible catastrophe. That’s why many investors bought gold during the financial crisis. Gold prices continued to skyrocket in response to the eurozone crisis. Investors were also concerned about the impact of Obamacare and the Dodd-Frank Wall Street Reform Act. The 2020 debt ceiling crisis was another worrying event.

Many others sought protection against a possible U.S. economic collapse. As a result of this extreme economic uncertainty, gold prices more than doubled again. Prices went from $869.75 in 2008 to a record high of $1,895 on September 5, 2020.

Gold as a Direct Investment

Many investors wanted to profit from these tremendous increases in the price of gold. They bought it as a direct investment to take advantage of future price increase.

Others continue to buy gold because they see it as a finite valuable substance with many industrial uses. They believe that supply constraints will eventually force up the value of this metal.

Last but not least, gold is held by many governments and wealthy individuals. For the governments, much of it is legacy gold that’s been kept in storage for decades. The U.S. Treasury has stored gold at Fort Knox, Kentucky, since 1937. Selling the gold now would raise anxieties and possibly disrupt markets.

The Federal Reserve does not own gold. It does keep gold owned by the U.S. Treasury in its vault.

What It Means to You

Gold should not be bought alone as an investment. Gold itself is speculative and can have high peaks and low valleys. That makes it too risky for the average individual investor. Over the long run, the value of gold doesn’t beat inflation.

But gold is an integral part of a diversified portfolio. It should be included with other commodities such as oil, mining, and investments in other hard assets.

What Makes Gold Special

Why should gold be the commodity that has this unique characteristic? It has a long history as the first form of money. It then became the base for the gold standard which set the value for all money. For this reason, gold confers familiarity. It creates a feeling of safety as a source of money that will always have value, no matter what.

Gold’s characteristics also explain why it’s uncorrelated with other assets. These include stocks, bonds, and oil. Gold’s price doesn’t rise when other asset classes do. It doesn’t even have an inverse relationship like stocks and bonds do with each other.

Instead, it is a reflection of many other investor sentiments. That makes another reason to have gold as part of a well-diversified portfolio in today’s globalized world where most asset classes end up being highly correlated. (Source: “Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold,” The Financial Review, 2020 pp. 217–229)

Disclosure: The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

A Gold Price Forecast For 2020 And 2021 *Corona Crash Update*

We forecast a mildly bullish 2020 with a gold price forecast of $1,750 and a more bullish 2021 with a first test of all-time highs

We consider our annual gold price forecast one of those important forecasts because of our track record in forecasting gold prices. It is clear that both gold and silver started a new bull market. One thing that most forecasters or analysts really miss is a sense of how markets tend to work. A bull market starts slowly and picks up in speed over time. So this an early stage bull market in precious metals, and our gold price forecast reflects a slow start in 2020 with first signs of picking up speed in 2021. We predict gold’s price could rise to $1,750/oz in 2020, and $1925/oz in 2021. The prerequisite is that gold’s COT report shows signs of a bull market, that the US Dollar is not too bullish (neutral to bearish at times) and especially 20 year Treasury rates show declines from time to time. Our 2020 forecast for gold is mildly bullish while our 2021 forecast is wildly bullish with a big spike.

[ Corona Crash Update posted on March 20th 2020 . Please scroll to the bottom to find the most up-to-date gold price chart as well as insights to our forecasts after the Black Thursday and Black Monday crashes in March of 2020.]

We want to point out, before looking into the details of our gold price forecast, that we are no perma bulls nor perma bears. We have a bullish forecast for gold and silver (read our silver price forecast here) because we see a bull market, underpinned by market conditions. A few years ago however we forecasted a bear market in gold and silver, and our prediction was accurate!

Markets move in cycles. Each market has its own characteristics, and the periods in which a market rallies is a minority of time. The key is to be in a market right at the start of a major move. However, a minority of investors is able to do so as the majority gets sucked in towards the end of a big move (when it’s almost too late).

When it comes to gold now is the time to accumulate positions by buying the dips for the long term. That’s the strategy that comes out of this gold price forecast for 2020 and beyond 2021.

Why This Gold Price Prediction?

We are here to catch those major moves in gold, and our gold forecast should guide us with this.

We are on the lookout of markets that become a multi bagger in 6 to 9 months time. It is our official mission, formalized at the start of 2020. We call it our Mission 2026, and we even have a target for this: we want to turn $10k into $1M the latest in 2026 by having the best forecasts and associated trades.

That’s the reason why we spend so much time researching and writing our annual forecasts, first and foremost our annual gold price prediction.

This gold prediction suggests that (1) a new bull market in gold and silver has started with the June 2020 breakout in gold as explained in Gold Enters New Bull Market Right Before Its 8th Bear Market Anniversary (2) this bull market is here to stay for several years.

All this implies that ‘buy the dip’ is the best strategy going forward, both for playing the gold as well as the silver market. There will be one or two rallies per year going forward. Those are the ones we want to catch. We recommend readers to sign up to our free newsletter to follow our work and try to catch those gold rallies in 2020 and beyond 2021.

Our Gold Price Forecast for 2020 and 2021

Let’s start with the conclusions of our gold price forecast for 2020 and 2021: gold is a new bull market.

Based on the long term charts which show gold’s dominant patterns we expect this new bull market to continue for several years.

InvestingHaven’s research team strongly believes that gold’s dominant trend is this 8-year rounding formation after hitting all-time highs. The bottom of this rounding pattern was reached after 5 years so we expect some 4 to 5 years before gold is able to break out to all-time highs. Consequently we will see a formation of higher lows in 2020 and 2021.

Bull markets accelerate slowly over time, only to accelerate as they mature. With that in mind we predict several spikes in the 2020 and 2021, and in 2021 we expect the first but unsuccessful test of former all-time highs. It might take a year or two before a definite breakout above gold’s former highs at $2,000 is a fact.

All this assumes no exceptional circumstances like sudden but wild inflation.

We look at leading indicators in the COT report and inflation indicators to get a sense of the timing of the spikes in 2020 and 2021.

Our Gold Price Forecast for 2020 and 2021

Based on the leading indicators and gold’s chart setup we see the following gold price forecast for 2020 and 2021.

This is our forecasted gold price for the coming years. Prices reflect gold’s spot price.

Year Gold price forecast Conditions Invalid
2020 Mildly bullish, spike at $1,750 Dollar soft, gold strong, inflation bottoms Gold falling back to its breakout level at $1,375
2021 Wildly bullish, spike at $1,925 Dollar soft, gold strong, inflation bottoms Gold falling back to its breakout level at $1,375
2022 Neutral N/A N/A

Gold Price Forecast Now Underway (edit: Jan 3d, 2020)

Ed. note: This is paragraph (only) was added on Januardy 3d, 2020.

Today, right at the start of the 2nd trading day of 2020 we get a confirmation of our bullish gold forecast written many monts ago.

Whether gold is rising because of political tensions is besides the point. The point is that gold is rising, and was already on the rise (hint: markets make the news, not the other way around).

This bullish scenario might make the gold market the most attractive market in the first months of 2020! We identified the bullish breakout level to be 1530 USD. Last night, gold convincingly crossed this level and now trades in a higher area of this new rising channel.

We believe the grey channel on below short term gold chart will be the dominant pattern for the first months of 2020. This is pretty bullish. It also points to a gold price target of $1,715 which comes very close to the projected $1,750 for 2020 which we forecasted many months ago.

Interestingly gold and silver miners did break out already a few weeks ago. However they seem not to be following the metals prices, at least they do so partially. It will be interesting to see what happens with precious metals miners if bullion prices continue to be strongly bullish as they are at the start of 2020.

Ed. note: Sign up to our ‘momentum investing’ premium service to known when we believe it is time for gold and/or silver trades.

Leading Indicators for our Gold Price Predictions

We have been successful forecasting gold prices in recent years.

To illustrate this we go back to September of 2020. Back then our gold price forecast was published in this MarketWatch gold article. The set of circumstances drove gold lower, exactly as predicted.

In May of 2020 however we were very vocal and convinced about a gold price breakout, and said so in Why gold’s a ‘bargain’ at less than $1,300 an ounce which was published on MarketWatch. Also Barron’s picked up our forecast, and featured it on the same day: How Gold Could Stage a 20% Rally This Year.

The reason why those gold price predictions were proven accurate is because gold has a number of reliable leading indicators.

First of all gold’s futures market COT report helps understand extremes and price levels that may act as turning points. This is not exact science, and yes there is lots of manipulation in this space.

Regardless the COT report has helped understand when the price of gold has or hasn’t upside potential (similar to its downside potential).

Second there is the the inverted Dollar as well as inverted Treasury rates correlations.

The USD has a negative directional correlation indicator with gold’s price. This means that is helps understand secular trends (not day-to-day trends).

Similarly, the inverted correlation between gold’s price and 20 year Treasuries suggests directionally where gold’s price is headed.

We look at all those leading indicators, combine it with gold’s chart patterns, and use this as the input for our gold price prediction. In other words we don’t look at gold news as a leading indicator nor at gold research for gold investors.

Leading Indicator: Gold COT

The way to understand this indicator is that it signals a bottom or top when hedge funds have extremely low or high positions. The shape of the subsequent change in net positions is what helps understand whether there is a bull market or bear market in the price of gold.

When it comes to the gold COT report we look at extreme net positions of non commercials. Every time non commercials are approx. 300,000 contracts net long it tends to signal a major peak in gold’s price.

That’s the same level we see at the time of writing. This indicator has to come down in other words.

When it comes to interpreting what it means for the big picture trend when gold’s price turns up we have to look at the level of net long contracts by non commercials. There are 2 potential scenarios, each with an important implication:

  1. Either net long positions of non commercials drop close to zero before the price turns up. This is a sign of a gold bear market.
  2. Either net long positions of non commercials remain significantly positive before the price turns up. This is a sign of a gold bull market.

Everything we explained in this section should be reflected in the center panel of the first chart.

Leading Indicator: Gold to Dollar inverted directional correlation

The 2nd leading indicator for gold’s future price is the Dollar inverted correlation.

The next chart shows the Dollar in light grey, but it is inverted. The price of gold is reflected in black.

In the last 2 decades the gold price chart has tracked the inverted price of the Dollar with just 3 exceptions (2020, 2020/2020 and 2020). Those exceptions only tended to last 6 to 15 months.

Now one may argue that the divergences are substantial, and it would question the validity of this gold price forecast leading indicator.

However, we have to look carefully at the ‘events’ that took place when these divergences took place. In particular gold and the USD are not correlated during major events: a major rally in gold (2020), a major breakdown in gold (2020) or a major breakout (2020).

In other words gold and the USD are negatively correlated (which we already knew) but only directionally (not per se in the short to medium term). When disruptive ‘events’ take place (a major breakdown or breakout) the gold market goes its own way, and does not correlate to the USD.

That’s exactly why our point is that both markets track each other (inverted) directionally . They do so except when ‘major chart events’ hit the gold market.

Leading Indicator: Gold to Treasuries directional inverted correlation

The next leading indicator appears to be directionally reliable in forecasting the price of gold. It means this correlation helps understand the direction: up vs. down.

The rate of 20 year Treasuries is shown in light grey on below chart while the gold price is reflected in black.

There is a clear correlation between both markets. The 4 divergences are shown in red, and it’s clear that it’s really different compared to the divergences on the gold / USD inverted chart shown above.

These divergences tended to last 6 to 9 months, much shorter than the gold / USD leading indicator. The divergences took place during strong ‘risk off’ periods.

Confirming Indicator For 2020 and 2021: Gold vs TIP

Let’s revise the 3 gold price leading indicators outlined in our gold price forecast: gold’s COT, the inverted gold / USD correlation and the inverted gold / interest rates correlation.

All 3 of them have a certain level of reliability, and all of them help understand the future gold price direction in a different way. They should be interpreted in a complementary way, and the word that stands out here is ‘interpretation’.

Now we can get the help of a ‘confirmation indicator’. It is the TIP ETF (inflation expectations). This supports our gold price forecast as it is directly correlated to gold’s price.

However, TIP ETF is not a leading indicator for gold’s price.

So TIP ETF should be considered together with the 3 other leading indicators. Yes, that’s how complex it is to forecast gold prices. It goes beyond what you tend to read in media.

The Longest Gold Price Chart (50 years)

Below is the 50 year gold price chart. This a quarterly (!) chart so it is meant to read the most dominant trends.

We believe this chart contains a wealth of insights. It is especially useful for our gold price forecast for 2020 and 2021 .

Let’s review the insights we derive from this gold price chart, and how it is useful for our gold prediction:

  1. Gold’s bull markets tend to rise in 3 phases. Each phase is more aggressive in its rise.
  2. The consolidations tend to have a similar pattern as well: a rounding formation that ends with a horizontal breakout.
  3. The really strong rallies occur a minority of the time, particularly in phase 3 of an uptrend. That’s when most money is made.

All that said we do expect a steady rise back to all-time highs but obviously a break to new highs will not take place in 2020 nor in 2021.

Give the gold market the time it needs. Buy the dips, slowly accumulate. This horizontal breakout is something we have seen before, and it is strongly bullish. It is the basis of our gold forecast for 2020 and beyond 2021 .

Gold Chart and Price Targets

Let’s now combine the findings of our leading indicators, the observations on gold’s long term chart above (50 years) with the monthly gold chart on 20 years shown below.

Gold ended its 8 year bear market. It started an 8 year bull market in June of 2020 after a horizontal breakout.

The rounding pattern on gold’s chart suggests gold will rise to $1,725 in 2020 and may test $1,925 in 2021. Note that these are spikes, and prices will retrace after hitting those peaks.

We also do not forecast gold to rise to all-time highs after the first test of former all-time highs. It might take 3 attempts before gold breaks out to new highs.

The leading indicators, especially the inverted USD as well as inverted interest rates indicators will help us understand the big picture moves in gold’s price.

The gold COT report will help us understand the spikes to our price targets. We pay special attention to the net long positions of non-commercial traders when gold is bottoming. It should confirm our gold bull market view.

Last but not least the TIP ETF should confirm the direction of gold (not forecast it though).

In 2021 we expect one or two bullish moves, when the COT report shows that the non commercials stop decreasing their net long positions.

We keep a close eye on the flipside of this bullish story. Bearish momentum will pick up once gold falls back below $1,375. Not likely to happen, but the flipside always has to be considered by investors!

Corona Crash Update on March 22nd, 2020

This paragraph and below charts contain an up-to-date version of the long and short term gold price charts. We wrote this update on March 22nd, 2020, at the depth of the Corona crash.

First the weekly gold price chart on 8 years.

  • The bullish reversal between 2020 and 2020 was completed in the summer of 2020.
  • The breakout in June of 2020 sent gold in a new bull market.
  • The last months of 2020 were sort of a medium term reversal.
  • The first 3 months of 2020 were hugely volatile, but all within a range of 1460 to 1700 USD/oz.

This suggests that gold is now consolidating in the 1460 (support level of the new bull market) to 1700 USD area. Surprise surprise, the crucial 1557 USD is almost the media of this consolidation.

The daily chart shows this consolidation area in an easy to read close up.

The 1557 is the support area of 2020, and when this area broke down it resulted in the cataclysmic precious metals crash of March/April of 2020.

This is now the media of the new consolidation area in which gold moves.

We believe the big candles between mid-March 2020 and the time of writing may be the start of a new uptrend, but this needs confirmation in the next few weeks!

We believe our gold price forecasts for 2020 and 2021 are still valid, and with new monetary stimulus our gold price forecast is conservative. We believe gold will rise higher than we expected, and gold miners are a certain point will catch up !

Keep Your Eyes Open For A Precious Metals Miners Rally in 2020

We would not exclude precious metals stocks to be more bullish than the metals especially in 2020 and 2021.

How could that be the case?

Because of a few reasons.

First of all, stocks are starting a new ‘risk on’ cycle. That’s what we explained in Stock Market Forecasting Cycle Predicts Bull Market In 2020 as well as our Dow Jones Forecast For 2020 And 2021 (32,000 Points). Consequently this is the right type of environment for precious metals stocks to thrive even though metals will be mildly bullish. That’s because precious metals stocks are in the end stocks, and may react on positive stock market conditions for sure if they are supported by positive metals conditions.

Moreover, as per our 7 Must-See Charts Suggest “Buy Precious Metals Stocks” Going Into 2020 we see some solid precious metals stock ratios. One of them is the GDXJ to gold price embedded below. This is a ratio that rises if there is a risk appetite measure for the precious metals market.

This ratio broke out, and may indicate that precious metals stocks may outperform the metals in 2020 and 2021.

Results of our previous Gold Predictions

As said before we have a track record of forecasting gold and silver spot prices. The table below is based on the forecasts made in prior years, both on our own website in the public domain and even on financial media sites.

This is an overview of our gold price forecasts from last years. We publish these forecasts many months prior to the year that we forecast. Prices reflect gold’s spot price.

Year Our gold forecast Highs Lows Forecast accuracy
2020 Bearish with price testing 1,000 1,358 1,123 Accurate
2020 Bearish with price testing 1,100 1,365 1,160 Spot-on
2020 Bullish with price target of $1,550 1,556 1,265 Spot-on

Gold Predictions by other Analysts

Interestingly, quite some gold price predictions have been published by analysts in the field. Most of them have a similar price target, with just one being bearish and the rest slightly to extremely bullish.

Obviously a very bullish 2020 for gold is hardly possible. That’s not how bull markets develop. The start slowly and pick up speed over time. So whoever forecasts a gold price of $2,000 in the 2020 is not really connected to the of reality markets.

We will update this list of gold price predictions throughout the year!

This is an overview of forecasted gold prices for 2020 by other analysts. We don’t support these forecasts, we just share them to illustrate how other analysts think about a gold price forecast for 2020 and beyond.

Year Analyst Silver price prediction
Gold price forecast 2020 InvestingHaven’s research team Bullish bias, spike to $1,750. In 2021 spike to $1,925.
Gold price forecast 2020 World Bank $1,600
Gold price forecast 2020 Thorsten Polleit, Degussa’s chief economist $1,700
Gold price forecast 2020 Capital Economics $1,350
Gold price forecast 2020 Roche $2,000
Gold price forecast 2020 Reuters poll among analysts $1,425 (average price)
Gold price forecast 2020 Citi analysts $2,000
Gold price forecast 2020 TD Securities $1,600
Gold price forecast 2020 Goldman Sachs $1,600
Gold price forecast 2020 Bullion by Post $1,896

Gold Forecast Log: Weekly updated throughout 2020

This is a continuous log to keep track on our gold forecast. We update this on (bi-)weekly basis throughout 2020 with in a bullet style with highlights of the week/month as it relates to our gold projection for 2020.

  • First week of January: the gold market is on track to meet our 2020 forecast. We expect more strength in January of 2020. Our projected gold price price of $1750 may be met by end of April after which a cool down period might follow.
  • Second week of January: great start of the week for the price of gold.
  • The last week of January looked like a breakout for gold. However this was invalidated in the first week of February.
  • Going into February 2020 we propose to wait-and-see in the gold market. No position in our portfolios for now, and no clear short term forecast possible until proven otherwise.

Detailed Follow Up on our Gold Forecast (free forecasting email newsletter)

We absolutely recommend to subscribe to our free newsletter in order to receive future updates. We publish updates on our gold forecast. But we also do publish other forecasts.

We continuously, throughout the year, publish updates on our annual forecasts. Any revision in our forecast are published in the public domain and appear in our free newsletter. Therefore, the only way to track the pulse of markets and stay tuned with our forecasts is to subscribe to our free newsletter >>

Must-Read 2020 Predictions from InvestingHaven’s Research Team

We absolutely recommend to read the following predictions as they are highly informative and very well researched.

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