Gold is back above the $1,200 level today, but the precious metal is well off its 52-week highs.
While some expect gold to tumble much further, Frank Holmes at US Global Investors expects the yellow metal to rally by about $200 over the next 12 months.
He said the low for the year tends to take place in June-July.
“Markets are capitulating, there’s liquidation and if you just look at the maths of volatility, it is extremely oversold,” Holmes told Business Insider. “That crowded trade would be how many people were short the commodity. And we like to take a lot comparing it to how has Facebook done, and how has Apple done in the past 12 months. Those stocks have lost more money, each of them individually, than all the gold, but people are fixated on gold going down.”
Holmes also pointed to what all of this means for gold supply. Gold mining companies are producing gold at cost or are losing money. Their goal now is to drive down costs.
“We are going to see the supply of gold decline. That’s a real key factor. And the junior companies are starved for capital, and them being starved for capital, most big discoveries come from juniors, and if they’re starved for capital, there’s going to be no success in exploration…
“We’re below the cash cost for producing an ounce of gold. And what we’re going to see is what we saw with natural gas, the huge explosion in the discovery of natural gas and immediately drilling stopped. All the drilling companies stopped that took supply away from the market. And I think you’re going to start to see the same thing with gold.”
Besides the technical break in gold, Holmes said the biggest two things he is seeing are the “short-term calamity in America and China with the punch bowl being take away allegedly,” and India’s higher taxes on gold imports.
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