Precious Metals Headed Higher: Here’s How I Know

Precious metals have been showing signs of an impending breakout to the upside. I’m not one for technical analysis or price action in equities or anything else for that matter, but the current rebound in the precious metals, notably gold, has caught my eye. While gold held its own around $1,100/oz, reaching a low around $1,080, it is currently trading above $1,125/oz.

My bullish sentiment on gold in the near and medium term and especially longer term is due to the following:

• Investment demand has picked up substantially, a trend I expect to continue for years to come.
• Gold has been rising despite a rather strong rally in the USD, currently standing around 80.53. This is very indicative of the increasing attractiveness of gold by central banks, institutions and retail investors. When gold peaked before the financial crisis, the USDX bottomed around 72, which cause gold to reach $1020/oz. Assuming investment demand does not continue to gain momentum, just returning to the 2008 low of the USD, gold would be 11.85% higher.
• The IMF is notorious for selling gold at the bottom of a bull market, a trend that remains intact.
• The announcement by the IMF to resume their approved 400 metric tons of gold onto the open market didn’t impact the price of gold, but actually may have spurred investment demand as it has risen approximately $35/oz over the last 10 or so trading days. The sale of gold to India last year saw gold have a $75/oz move from the day’s low-high.

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