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Why Gold Is Headed Higher Next Year

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The spot price of gold has softened in September on hopes that the United States and China can hammer out an agreement as talks are set to restart in October.

Recent reports indicate that China is seeking to narrow talks with the U.S. in order to settle most of the issues on the trade book. Both sides would theoretically shelve national security concerns in order to break the deadlock.

Precious metals have performed well over this stretch. Newmont Goldcorp (TSX:NGT)(NYSE:NEM), the largest gold producer in the world, has seen its stock increased 8.5% over the past three months.

The company forecasts stable production over the long term, and management has continued to explore expansion opportunities. Newmont possesses a P/E ratio of 33 and a P/B of 1.6, which puts it in favourable territory relative to its peers.

Barrick Gold (TSX:ABX)(NYSE:GOLD) is the second-largest producer in the world. Shares have climbed 23% in 2019 so far. The company came out looking solid in a recent report from the Shareholders Gold Council, which pointed out that gold equities have underperformed over the past 10 years relative to the spot price of gold.

It pointed to cost control as the major issue facing producers. Barrick boasted one of the best median expense to cash ratios at 4.6%.

For investors who want to bet on the yellow metal, senior gold producers remain the most stable bet.

Gold was holding slightly above the $1,500 mark as of close on September 12. Investors may be losing faith in the yellow metal due to these talks, but this is unwarranted.

Last week I’d discussed why I thought gold had a chance to soar to $2,000. Recent news should not sour investors on gold’s outlook. Today I want to explore why.

Central banks remain dovish in late 2019

In early spring I’d discussed why a yield curve inversion was a signal that it may be time to pile into gold stocks. Yield have rebounded in the late summer, but remain at low levels at the time of this writing.

These may drive broader anxiety in the near term, but I’m more interested in central bank policy as we head into the fall.

The European Central Bank just cut interest rates and relaunched its bond-buying program. Experts and analysts expect that the U.S. Federal Reserve will move forward on its own rate cut in its meeting next week.

The Consumer Price Index rose 2.4% year-over-year in August, but it does not look like this will change the current direction of the Fed.

We don’t know how long this soft rate cycle will last. However, it does not look like global trade tensions will subside anytime soon.

This will keep policymakers busy combating potential economic turbulence in this late recovery period. I expect gold to continue to flourish as we wade into uncertain monetary waters.

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