VanEck reasserts bull case for gold ETFs; sees bullion at $3000/ozt and beyond

Aug 11th, 2020 | By | Category: Commodities

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ETF issuer VanEck remains bullish on gold, seeing $3000/ozt as a reasonable price target for the metal in the current bull market run.

VanEck reasserts bull case for gold ETFs; sees bullion at $3000ozt

Joe Foster, Portfolio Manager for VanEck’s Gold Funds.

VanEck initially took a bullish stance on gold in mid-2019, pointing to sustained central bank uncertainty, the surge in negative-yielding debt, and gold’s recently having broken through a strong technical six-year mark at the time.

Much has obviously happened since then, and in the firm’s latest assessment they find a number of key reasons to reassert their bullish view as gold moves past its previous all-time high.

“Since 1968, when gold was $35 per ounce, the drivers of gold bull markets have fallen into two categories: inflationary and deflationary,” says Joe Foster, Portfolio Manager for VanEck’s Gold Funds.

“We don’t see inflation spiking anytime soon, so we believe this to be a deflationary cycle. Both recent deflationary gold bull markets suggest that a price over $3000 per ounce is reasonable.

“In fact, if one measures the start of this bull market from the 2015 lows, then it appears similar to the 2001-2008 bull market when gold rose over 200%.”

“If one believes, as we do, that the current central bank stimulus to fight the impacts of the Covid-19 virus, along with elevated levels of systemic risks, are similar to those during the global financial crisis, then $3400 may be the target for this bull market,” adds Foster.

According to VanEck, in the current deflationary bull market, low interest rates and the unknown economic impact of the Covid-19 pandemic have been driving the recent investment demand for gold; but other factors, like the weakness of the US dollar, geopolitical uncertainty, and continued rising debt levels have bolstered a bullish view as well.

In addition, gold may be poised to perform well should inflation develop eventually, due to the massive stimulus measures taken by central banks and governments worldwide.

“Along with the persistence of negative real rates, we believe many dynamics appear very favourable for gold and gold equities moving forward,” adds Jan van Eck, VanEck Chief Executive Officer. “Gold continues to be a scarce commodity and the fact that there have been no significant new gold discoveries since 2016 only adds to its supply pressure.

“Meanwhile, gold mining companies have re-emerged from a period of management turnover and fiscal restructuring and are, in our view, now better positioned to return value to shareholders.”

Both physical gold bullion and gold mining equities can provide important potential benefits, with each offering a unique risk/reward profile. Bullion has historically displayed a lower volatility profile, while equities tend to be more volatile and have historically outperformed gold during bull market cycles because of their optionality through earnings and resource leverage.

VanEck’s gold products include the VanEck Vectors Gold Miners UCITS ETF (GDX LN) and the VanEck Vectors Junior Gold Miners UCITS ETF (GDXJ LN) in Europe, and the VanEck Vectors Gold Miners ETF (GDX US), the VanEck Vectors Junior Gold Miners ETF (GDXJ US), and the physical VanEck Merk Gold Trust (OUNZ US) in the US.

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