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A Perfect Storm Is Brewing In Gold Markets

  • Gold prices have climbed nearly 7% over the past month, fueled in part by the growing tensions in Ukraine which have since boiled over, resulting in a full-scale invasion by Russia.
  • Analysts are predicting that the Ukraine War could potentially trigger something much bigger.
  • Chris Vermeulen predicts that gold is set to hit $2,700 an ounce in 2023, and rise to $7,400 in five years as a perfect storm brews for the precious metal.

Gold prices have jumped nearly 7% over the past month to trade at levels they last touched nine months ago as a full-scale invasion of Ukraine by Russia helped keep safe haven demand strong. Spot gold was trading at $1,919.20 per ounce on Wednesday’s intraday session, a 6% increase since the beginning of the year and a level they last touched in early June, 2021.

But some analysts are now saying that the Ukraine tensions will only serve to trigger something much bigger.

Chris Vermeulen, Chief Market Strategist of TheTechnicalTraders.com, says that gold remains in a secular bull market, with a long-term technical bull cycle that mirrors the beginning of 2008.

But here’s where it gets interesting: Vermeulen has told Kitco News that gold is set to hit $2,700 an ounce in one year, and up to $7,400 in five years as a perfect storm brews for the traditional safe haven.

Precious metals vs. commodities supercycle

“I think we’re coming into a pretty major supercycle in precious metals. I think we started back in 2019 and this is about a five-year cycle for gold, and it has been a very tough year for equities, and we’ve had a very long bull market, I think things are getting a little long in the teeth in terms of the equities side. When the stock markets get to the late stages, this is where we see commodities come to life,” Vermeulen has told Kitco.

According to Vermeulen, gold miners and commodities are set to outperform the broad equity index. 

And, so far, that appears to be the case.

The VanEck Vectors Gold Miners ETF (NYSEARCA:GDX) is up 7.7% in the year-to-date, outperforming the broad market benchmark by nearly 18 percentage points. Gold miners are among the stock market's few winning sectors this year, with gold futures gaining as rising fears of a Russian invasion of Ukraine prompt demand for safe-haven assets.

"Further escalation of tensions are sure to keep gold well supported [but] any softening of the rhetoric on the Ukraine-Russia situation will surely put a bid back into equities," GoldCore's David Russell has told MarketWatch.

It’s a sentiment shared by UBS, with the analyst predicting that the gold rally will be short-lived and gold prices will fall back to the $1,600s by year-end.

But the broader commodity market has been even more impressive.

Bloomberg Commodity Index

Source: Financial Times

The Bloomberg Commodity Index (BCOM) has rallied 14.5% YTD and 30.8% over the past year as supply chain snags and robust demand continue to fuel one of the biggest commodity rallies of modern history. For instance, copper, aluminum, cobalt and aluminum prices are sitting at historical highs as the green energy revolution continues fueling robust demand growth.

And unlike gold, the green metal rally appears to have staying power with prices of green metals projected to reach historical peaks for an unprecedented, sustained period in a net zero emissions scenario.

By Tom Kool via Safehaven.com

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