Here’s Why Gold Will Rise to $1,400 by the End of 2016

gold standardBoris Schlossberg: A very smart French money manager once told me, “Gold is not an investment — gold is an insurance policy.” To that end, it is always smart to have 5%-10% of your portfolio in gold, basically as a hedge against an “end of the world” scenario.

Sometimes, however, gold can actually become a pretty good investment — and this is one of the moments when the “barbaric relic” is looking very attractive. The reason behind the rally is really no mystery. It can be summed up in one word: rates. Or rather absence of them.

Consider the following facts. The U.K., which sports some of the biggest sovereign and commercial debt in the OECD universe, has just voted itself out of the club of Europe.

As a result of those actions, it saw business confidence plunge to a 41-month low, but its 10-year bonds are trading at a record low of 70 basis points. That means that amid all the tumult and turbulence of Brexit, investors are perfectly content to loan money to the U.K. government at a whopping 7/10th of 1% for 10 years forward.

And, of course, the U.K. is not an isolated case. More than $8 trillion of sovereign debt is now trading at negative rates. There is simply no way for investors to earn ANY money in quality yield-based investments anymore.

This is the reason that dividend-based stocks and dowdy utilities are sporting valuations more appropriate for Silicon Valley unicorns. And, of course, it’s also the reason that gold continues to climb without any pause. As long as paper provides no return, it offers no competition to gold and the yellow metal will continue to move higher, squeezing more and more shorts along the way.

Last night, the Bank of Japan offered a new stimulus program that added 28 trillion yen to its balance sheet, agreeing to buy more ETFs. The currency market in response sold USD/JPY because it wanted “more stimulus.”

At this point, anything short of “helicopter money” will not satisfy traders. It seems utterly bizarre that markets are acting this way, essentially daring the central banks to print money ad infinitum, but it’s the result the deflationary times we live in.

The Fed, for its part, remains highly reluctant to rock the boat. U.S. data has surprised to the upside for more than a month, but the Fed statement this week offered no timetable for rate hikes. Fed Chief Janet Yellen and company acknowledged the good news, and them promptly went on to ignore it in their policy considerations.

Even if U.S. growth were to soar to 3% this quarter, the Fed will likely hold off on hiking rates until December at the earliest. Although monetary officials pride themselves on being non-political, the current election cycle is the most partisan event in our lifetime and there is no way that monetary authorities will want to get in the crossfire between Donald Trump and Hillary Clinton.

Therefore, as long as rates refuse to rise, gold will continue to attract money, and the precious metal could reach $1,400 an ounce by year’s end.

The SPDR Gold Trust (ETF)(NYSE:GLD) closed at $130.27 on Tuesday, up $1.05 (0.81%). In premarket trading Wednesday, the largest gold ETF posted small losses to $130.17. GLD has gained 28.4% year-to-date, outpacing the S&P 500 index by more than five-to-one.

This article brought to you courtesy of MonkeyAndMarkets.com.

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