Gold's Bull Run Hasn't Hit Its Ceiling Yet
For years, the euro was the world's second-largest reserve asset. But it recently got overtaken by a metal...
According to a recent European Central Bank report, gold is now the second-largest central-bank holding in the world. (The U.S. dollar remains No. 1, at 47% of bank stores.)
Central banks are stockpiling gold at a much faster rate than they are paper currencies...
That demand shows no sign of relenting. In fact, it looks set to push gold to new all-time highs in the second half of the year.
Let me explain...
Why Central Banks Are Favoring Gold
Gold didn't take the No. 2 spot because of the euro's poor performance. This happened because of a trend in the U.S. dollar...
The buck just had its worst first half of a year since 1973. It fell about 11% through the end of June compared with other global currencies.
This environment has pushed central banks out of the dollar and into gold at an accelerating rate. Take a look...
As central banks dumped the dollar, they stockpiled gold. That's how gold clinched the No. 2 spot as a global reserve asset.
And central bankers aren't likely to lose their appetite for gold anytime soon. As you can see below, they're increasingly expecting to add to their gold reserves in the coming months...
Sentiment is positive... Indeed, it's at a record. But with 57% of institutions electing not to change their gold reserves over the next year, sentiment still has room to grow.
That means gold is likely to break out to new all-time highs in the coming months. But it hasn't cracked the ceiling just yet. Take a look...
Gold is bumping its head against a price of $3,435 per ounce. You can see it neared that level in April, June, and then again just last week.
But you'll also notice that gold has made a series of higher lows since April. It found a floor of $2,978.35 in April... followed by $3,185.92 in May. And finally, last month, it found a floor of $3,268.
This narrowing trading range is what's called a "consolidation phase." It shows a market that doesn't want to bid on gold above $3,435 an ounce... but in which folks buy price dips with increasing speed and enthusiasm.
In other words, the upside pressure is immense. The $3,435 ceiling isn't likely to last long... but you have a chance to buy gold today while it's still hovering below it.
Gold still hasn't topped out. And with central-bank buying providing a backstop, it's likely that today's price will act as a floor for the metal in coming months.
Don't let this consolidation phase fool you. This is not the end of gold's bull run. It's only a breather – and savvy investors should get ready for the next leg higher.
Good investing,
Sean Michael Cummings
Further Reading
"Bubble behavior happens when just about everyone is clamoring to buy," Brett Eversole writes. Despite gold's bull run, investors still want nothing to do with gold miners. That means we haven't reached bubble territory yet – and this rally can continue.
"If you want to make the big money, silver is the place to invest today," Brett says. Silver has rallied right behind gold this year. And according to one ratio, we can expect a continued rally in both metals over the next year – with silver emerging as the big winner.
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