On October 2, Independent Strategy President David Roche told CNBC for the second time that gold prices could touch $2,000 next year. On October 2, gold active futures settled at $1,501 per ounce. This price target suggests a 33.2% upside from its last closing level.
In 2019, we might see gold at $1,600 per ounce, according to Roche. Earlier, on July 8, he told CNBC that gold would touch the $2,000 level. Roche isn’t the only one who’s bullish on gold prices. Legendary investor Mark Mobius is also bullish. In August, UBS advised clients to accumulate gold.
Equity market decline
This week, gold active futures have risen just 0.1%. But in the past two trading sessions, gold prices have recovered by 2.4%. On the contrary, since September 30, the Dow Jones Industrial Average has fallen 838 points. The S&P 500 (SPY) and the Nasdaq-100 (QQQ) are down 3% and 2.6%, respectively.
Dow Jones heavyweights Boeing (BA), Home Depot (HD), and Apple (AAPL) fell 3.4%, 2.8%, and 2.2%, respectively, between September 30 and October 2. AAPL, BA, and HD together constitute 21% of the Dow. Roche is a long-term bear on equities. In July 2017, he told Bloomberg that down the road we might see the pain in all the equity markets. Last year, he reiterated a similar view. In other words, equities and gold prices are negatively correlated.
Interest rate and gold $2,000
In the recent interview, Roche said, “Gold is a good alternative currency because it’s safe and because it costs nothing to own it compared to paying negative rates on deposits.” Around $17 trillion worth of bonds have negative yields worldwide. Except for the US and the United Kingdom, in the remaining top five developed economies, central banks have negative deposit rates.
For example, the European Central Bank pushed deposit rates further into the negative territory last month. Negative interest rates around the globe could push gold to the $2,000 level.
Gold as currency
Roche said, “What my gut says is that cause of the vilification of fiat currencies by central bankers, which is set to get worse — not better, people will look for an alternative currency.” Investor sentiments are also aligned in the same direction. In the past, investors looked to Bitcoin as a store of wealth. Bitcoin has risen 2,120%, in the last five years.
But blockchain technology could be vulnerable. In that case, gold might act as a better store of value. Lower interest rates also depreciate domestic currency. They’re an important tool used to spur growth by increasing export competitiveness. However, they erode the value of peoples’ wealth in terms of foreign currency.