15 Experts Provide Insight On The Factors Contributing to a Bull or Bear Market For Gold in 2015

Rather than 3 factors, I would rather just focus on how the majority of Wall St investment banks research is lazy (or more morally questionable than lazy) and only quotes the World Gold Council, CPM Group's numbers etc and doesn't fact check any of their figures with say Koos Jansen's research over at Bullion Star. Koos accurately tracks Shanghai Gold Exchange withdrawals and how tight the physical gold and physical silver markets are in terms of supply and why the paper price could not have gone much lower than it did in 2014. The last I heard from my contacts, Swiss refiners are still running 24/7/365 to recast older gold bars into new 1kg bars.

If metals prices had went lower or stayed around 2014 lows for months, many primary gold and primary silver miners were close to shutting down their mines and putting them on care and maintenance. The miners had burned through most of their cash on their balance sheets and large amounts of debt and equity were at punitive levels and simply not available in large enough quantities for many miners to keep their mines open and running at enormous losses.

In other words, there was about to be a potential supply shock or growing shortages for 8 figure or larger orders of gold and silver had the mines started to shut down. Primary silver miners make up ~25% of the global annual physical silver supply and only a handful of tiny primary silver miners in the entire world who produced less than 8 million oz of silver a year combined were making a profit mining silver at $16/oz. That's a lot of primary silver miners deeply in the red and running their mines at huge losses so that's simply not sustainable over the long term because unlike say the solar industry or corn ethanol which is 100% subsidized by the government and can run at enormous losses, miners eventually have to make a profit.

In my humble opinion, nearly all or all of the physical gold and physical silver miners pull out of the ground each year is basically already spoken for. That's how tight supply has been for the last few years yet the paper price was in a large cyclical bear market since 2011 and has not reflected the reality of supply and demand fundamentals. The market cannot ignore reality forever and with demand for physical gold and physical silver still extremely strong in Russia, Middle East, China, India, Asia, etc. Russia is putting almost 100% of their monthly trade surplus money into physical gold preparing for the next global financial system.

So the paper price going down and down every year was simply not sustainable given the real demand figures (again not the ones Wall St investment banks and the World Gold Council put out in research reports) we were seeing for physical metal coming out of the countries that are driving demand. The Western, US investor who tends to be educated in Keynesian Economics and brainwashed out of their common sense if they went to business school or watches CNBC or Bloomberg doesn't buy value and instead chases momentum as a trend trader has also ignored gold and silver since 2011.

Those US investor types have not been buying any metal since 2011 and probably also dumped their metal and/or have been shorting the paper price for gold, silver and miners. Sentiment levels became absurdly negative in 2014 as I believe they registered a zero (an all time low) from SentimentTrader.com. I am fairly confident gold and silver have put in their cyclical bear market bottom similar to the long and painful cyclical bear market bottom gold and silver experienced in 1974-1976 before resuming the secular bull market.

Globally, the US, Japan, UK, EU, etc are still trying to solve a debt problem with more debt. No government has really done the right thing for their long term economic health. Gold and silver still have major tailwinds as insurance to protect people's savings and their portfolios from financial repression and theft of purchasing power by all world governments addicted to rent seeking Keynesian Economics

I don't really view it as a bull market in gold and silver so much as a bear market in paper currency. Gold had a pretty flat year against the US dollar in 2014, but a strong year against pretty much every other paper currency. Why? Because, like the dollar, gold is starting to be viewed as a safe haven again.

But when you see a paper currency based financial system where interest rates are negative in real terms (US) or even nominal terms (Europe), mountains upon mountains of debt have accumulated in the "rich" west, and entire banking systems that are borderline insolvent, it's clear that the wheels are coming off the bus.

There aren't too many places to hold savings outside of this system in a liquid, portable, widely accepted form other than precious metals... or digital currency.

I have been influenced by Ben Hunt’s work on how narratives drive market as much as fundamentals. The first key factor for 2015 is that the narrative that gold is (was) in a bear market I believe is broken and gold’s recent strength has shifted the story to gold having formed a firm bottom. Second, the idea that central bankers are, and can, control the markets to “manage” it better than the free market had its first blow with the Swiss giving up its peg, followed by the change in Greece questioning whether the ECB can hold the Euro together. The resulting uncertainty has certainly been driving gold recently. The final factor that is still working against gold is the idea that the US economy is OK and the US will raise rates. Whether the Fed makes that move, and how that is perceived by the market, could provide a tipping point for gold to move higher in 2015.

My hunch is that three factors that are going to contribute the most to gold fluctuations in 2015.

1. Inflation--or its continued absence--in the industrialized world. This will depend to a large extent on what happens with the US recovery, Europe’s continued precarious position, and developments in Japan.
2. Political and military uncertainty around the world, particularly in Ukraine and the Middle East.
3. Growth in the developing world, especially India, China, and Latin America.

1. The bear market in precious metals, specifically in Silver and gold mining shares has reached limits in terms of both time and price when compared to historical bear markets. As a result, a new bull market could have already begun or if not, then is quite likely to begin at somepoint this year.
2. Last week Gold reached a 21-month high when priced against foreign currencies. At the same time, Gold was able to reach $1300 in spite of the US$ index reaching multi-year highs. This type of relative strength in Gold is often seen near important lows in the Gold price. With the US$ being the 3rd most overbought in its history, its very likely to endure a prolonged correction which in turn would obviously help Gold.
3. The last factor is the performance of global equities and US equities. If they continue to move higher then it puts pressure on Gold. If not, then Gold as an alternative would pick up more interest.

We do not offer financial advise. Obviously the policies of central banks is crucial. They impact interest rates, currency values, and the real economy. In a fiat money regime, I am personally a perma bull on precious metals. I recommend them to my friends and family and encourage people to find a way to regularly purchase them as an important form of savings and as protection against personal or economy-wide problems.

I believe gold does well when there is:

1. Strong growth in China and India
2. High inflation in developed countries
3. Economic turmoil

I don't see much of any of those three in 2015, although there is an outside chance that Greece leaves the euro, which might cause some turmoil. On balance I don't see gold as a great investment in 2015, with the caveat that it's really hard to predict gold price fluctuations.

The level of real interest rates.

Should the US Dollar continue to appreciate (our view) and if inflationary expectations remain contained, precious metals will struggle. On the other hand, if the US Dollar reverses course and/or inflation accelerates this year, then precious metals will benefit. Although nobody knows the future, we suspect that the former scenario is more likely to play out.

The one major short-to-intermediate-term factor is real interest rates – if you can forecast that, you know which way gold will go.

1. Though many claim the US dollar is tightly correlated to gold/silver, I don't think the correlation is meaningful, as the USD and gold can both rise together in periods of instability in the "flight to safety."
2. Many see inflation/deflation as the other key driver of gold/silver valuations. Given the mixed picture of inflation/deflation--do we count asset inflation?--I am skeptical that the usual argument for gold rising--expanding money supply, i.e. inflation--has predictive value.
3. The core reason to buy gold/silver is a hedge against uncertainty and/or because the precious metals are rising while all the other assets classes (real estate, stocks and bonds) are declining. If these overvalued asset classes do decline significantly, I would expect gold to benefit--and when gold actually breaks out above $1300-$1350, then this rise will attract more buying in a self-reinforcing feedback loop.

1. Faith in central bankers is waning. When Mario Draghi came out with his "whatever" it takes speech" in 2011, it was downhill from there for gold. Then an interesting thing happened in November of 2014. Faith in central bankers, especially in Europe, again came into question. Gold has been pretty firm ever since.
2. There is a huge presumption the US will hike rates this year and growth in the US is strong. Certainly growth in the US is not strong. If the Fed has to back down from hikes, or simply does not hike as much as the market expects, I believe it will be good for gold. And I do think the Fed will not follow through as expected.
3. Mining is energy-intensive. Falling energy prices will help earnings

I would watch the U.S. dollar. A renewed weakening of the economy likely will raise concerns about Fed policy, which would tend to hit the dollar, sparking renewed inflation worries and higher prices for precious metals.

1. Currency Wars - The money printing fiasco has no end in sight as the EU recently announced their own version of the QE program. They agreed to purchase $70 billion of public and private bonds in effort to boost the economy. This type of policy has been on-going since the 2008 financial crisis. Other countries has started printing money at rapid pace such as Japan and the U.S. The countries around the world is racing to debase their currencies in 2015 which will continue to create high inflation. Investors will continue to buying gold and silver as a hedge against bad monetary policies.
2. Federal Reserve Rate Hike - If the Federal Reserve decide to hike rate, it will lead to a short term price drop for gold and silver. I don't think a 25 basis point hike in the rate will end the bull market for gold/silver, but it will leave a bad taste in investors' mouth for a little bit. I expect the gold/silver market to continue the bull market afterwards. The hike rate will be minimal and not enough to put a dent in the market.
3. Strong fundamentals - The demand for gold and silver is strong from the East and the West. But the supply for the metals are dwindling as most miners can not produce a profit at today's prices. According to my research, the price of gold need to be at least at $1,400 and silver at $27 for most mines to be profitable. The high demand and tight supply means the price will have to increase and reach an equilibrium where the miners can profit.

Both the gold and silver markets have been bears for the better part of the last three years. I think you'll see an end to this at some point in time in 2015, at which point they'll begin to rise. The factors contributing to this are the Fed raising interest rates (expected to happen at some point in time in 2015), rising demand (as predicted by HSBC), and continued global instability, which usually correlates with a rise in precious metals prices.