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The Element of Surprise

gold-(1).jpg  

BY: HANS ALBRECHT, CIM®, FCSI, VICE-PRESIDENT, PORTFOLIO MANAGER AND OPTIONS STRATEGIST, HORIZONS ETFS

December 14, 2017

My favourite precious element is looking pretty good at the moment. In fact, it has even surprised me a little this year.

With potential rate hikes coming in 2018 (there is speculation that the US Federal Reserve will boost interest rates four times next year), gold is proving resilient. This is in part because the U.S. dollar has not been impressing lately (typically, when the dollar is weak, gold is strong). But gold is acting well versus recent second half performances and I think we should take note. Indeed, gold is trying to move to the upside.

A gold push towards $1,400 an ounce could be setting us up for 2012 levels around $1,800. In each of the last three years, gold has performed poorly in the second half of the year – from between approximately -2% and -10% during those periods. But not this year. This trend is in the process of being broken with a positive second half of 3.83% as at November 27, 2017. I can’t help but think that credit and yields have something to do with it.

A world awash in seemingly endless central bank stimulus is one in which strange things can happen. Why is Bitcoin valued at $11,000? Who knows, but why shouldn’t it be $20,000, $30,000, or higher? Crises of confidence in fiat currencies and ultra-cheap money can drive bubbles. Money has not been respected and that allows the formerly unthinkable to exist – like bonds at negative yields or a $450 million sale for a Leonardo da Vinci painting. Could gold benefit from these same forces? Yes, and perhaps the current gold run is just beginning. The perception just needs to become reality. Suddenly, everybody is talking about Bitcoin – does that legitimize it? It helps. Reality is what is right in front of you. Perception is indeed everything. I like gold. It has been around for millennia, and will be for millennia to come.

chart.jpg

Source: Thomson One, as at November 27, 2017.

The views/opinions expressed herein may not necessarily be the views of Horizons ETFs Management (Canada) Inc. All comments, opinions and views expressed are of a general nature and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.

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