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JPMorgan Chase Goes Bullish on Gold

Gold Starts Going Mainstream Again

Written by Geoffrey Pike
Posted March 22, 2016

jpmorgangoldIf you watch the typical mainstream financial news media, it is usually filled with optimism and a list of stocks to buy for the latest bull market. Sure, they will throw in a few skeptics to balance things a little, but the majority opinion is usually bullish on the economy and stocks.

Stocks started off terribly in 2016, and there has been some questioning about the strength of the economy since then, even though many stocks have largely recovered since falling.

But not everyone is touting a bull market in stocks these days. In fact, there is even some questioning coming from some of the big players now.

Marko Kolanovic, who is the Global Head of Quantitative and Derivatives Research for JPMorgan, is questioning the latest stock rally, and saying that there is more downside than upside for stocks right now.

JPMorgan Chase, as a whole, is not exactly a company that tends to deviate from acceptable opinion. It is one of the biggest players on Wall Street, and it is a company that largely benefits from the crony system that we have, along with the touting of stocks.

Kolanovic, in an interview with CNBC, argued that the recent rally may be short lived, and just a reflection of momentum investors covering their short positions.

Time will tell if Kolanovic is right, but it is still interesting nonetheless that a somewhat influential figure in the hedge fund industry is questioning the current rally in stocks.

There are always good stocks and bad stocks in any market. Even in the worst bear markets, there will still be a few stocks that go higher. But if we can guess the overall trend correctly, we can better allocate our limited resources.

If you knew a bear market in stocks was coming, you wouldn’t be guessing at which stocks to bet on. You would be taking most of your money out of stocks and waiting for another opportunity to buy low.

And while we don’t know if Kolanovic will be proven right with his rather bearish comments on stocks, it may not have been the most interesting part of his commentary.

He also argued that investors should actually be in gold right now, despite its recent rise. Kolanovic sees the Fed as continuing with a dovish policy, which could propel gold higher still. He sees gold as a defensive play right now.

Gaining Momentum in Gold

Kolanovic offered multiple arguments in his case of owning gold-related investments. He even cited an increasing chance of a Trump presidency that could impose tariffs, which might be bearish for the dollar.

I find that to be a lot of “ifs”, but his actual reasoning doesn’t even matter that much to me. The most important thing to me is that a well-known player with JPMorgan is trying to offer multiple reasons on being bullish on gold.

I know we get caught up in fundamentals, and they are important to a point. Federal Reserve policy matters. The velocity of money matters. There are many variables that impact the price of gold, including the direction of the dollar.

Still, the ultimate driver of gold prices is the overall demand. You can cite every reason in the world on why gold should be going up, but if most other investors aren’t seeing it that way, then your arguments won’t matter until the opinion of others changes.

With the recent rise in the price of gold, investor sentiment has turned a bit. Now the Fed is hedging on raising rates again, and we have just added a high figure with JPMorgan telling investors to buy gold.

This doesn’t mean that we might not get a pullback in gold. But the metal had really hit what seemed like rock bottom. The gold bugs were basically the last holdouts. Virtually nobody else had any interest in owning gold when stocks were booming and seemed secure.

Do the recent comments mark a shift in investor sentiment towards gold? Will any other big name players follow with positive statements toward gold? Will more of the big financial institutions start showing favor towards gold again?

Gold has started to gain a little bit of momentum. We may see some retractions in the price, but things are looking a lot brighter for the gold bugs.

When gold really starts to gain momentum again, and we are hearing positive stories about it every day in the financial media, then the price could really take off. It will have to go up about 50% at this point just to get back to its all-time nominal high.

It looks far away at this time, but momentum can change things quickly. We’ll see if these recent comments coming out of a high official at JPMorgan is the start of something more positive for gold.

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