A lot has changed as a consequence of the United Kingdom was voted in the favour of Brexit on June 23 including a change in gold prices. Gold has surged by 6.5% ever since the Brexit decision, gold has only been climbing higher by each day. Results from a certain research has predicted that the price of gold will surge by at least 260% at $5,000 an ounce by the year 2020. The prediction is quite bold and only three big catalysts can actually help gold hit a price of $5,000 an ounce in just three years and six months (2020). Let’s take a look at the three big catalysts that might make this prediction come true.
A Fragile Global Economy
Whenever the global economy faces a crisis, gold prices always benefit. The post Brexit economy uncertainties will definitely continue for a while, thus helping gold prices climb higher. A lot of investors and economists have raised questions about the next country to drop out of the European Union ever since the United Kingdom left the European Union. There are talks that the European Union might actually completely dismantle over the next couple of years. The geopolitical uncertainty will definitely send investors rushing to invest in gold.
Further Interest Rate Cuts
It is a fact that rate cuts lower the value of a currency. When the value of a currency decreases, gold tends to look more appealing as a store of value. ECB has reduced interest rates by -0.4% and there are indications of further rate cuts. And there has been some gossip about UK rate cuts ever since Brexit. Rate cuts, big or small will definitely aid gold prices in climbing higher this year.
Gold Trading At A Discount
The third and most important catalyst for gold prices climbing higher is the chances of gold trading at a discount. It is evident that gold is trading at quite a discount right now considering the Dow/gold ratio. The Dow/gold ratio can be arrived at by dividing the Dow index by the price of gold. The current ratio of 13.3 is proof that gold is trading at a good discount. Gold will continue trading at a much higher premium in the next few years.The demand for gold is rising in the Asian countries and will continue to do so in the next couple of years.
The above mentioned catalysts are only few of the catalysts that might lead to gold hitting $5,000 by the year 2020. There are various other small catalysts that might make this prediction come true.