Although gold has already had an extraordinary past few months, two analysts predict prices will reach greater heights in the coming year. Find out why here.
As the world economy slowly recovers from the effects of the coronavirus crisis, gold remains perched above its seven-year highs. While its gains over the past few months, as well as the second half of 2019, have been nothing short of spectacular, the metal is still 9% off from its all-time high and appears somewhat rangebound.
Two experts have chimed in regarding what’s necessary for gold to keep moving towards $1,800 and above, along with sharing their forecast for when it might happen. Darwei Kung, portfolio manager and head of commodities at asset management firm DWS Group, believes gold could experience a few bumps on the road on its upwards trajectory, but is nonetheless certain that the metal is headed for higher levels irrespective of possible headwinds.
The bumps in question would primarily be attributed to central banks, explains Kung. Due to the effects of the pandemic, the official sector has temporarily curbed its otherwise extraordinary demand for gold bullion. On the flip side, Kung notes that investor demand for gold has increased by a sizeable margin, and that its hedging properties remain as important as ever even in the midst of a stock market recovery. However, a persistent correction in the stock market, like the one many pundits have been calling for, could act as the driver that would push prices above $1,900.
Kung also thinks investors should pay attention to inflation expectations, as a rapid increase would act as a similarly powerful tailwind, as would economic and geopolitical conflicts. Kung predicts that gold will continue trading between $1,680 and $1,780 until March next year, when prices will finally move past $1,800, adding that any dip below $1,700 will represent an attractive entry point.
Peter Grosskopf, chief executive officer at Sprott Inc, noted that any future scenario should bode well for gold, as the metal does equally well in deflationary and inflationary environments. A worldwide economic recovery, particularly in China, would push the bond market even lower and boost gold as a result. Likewise, some form of continuation of the crisis that ushers in more money printing and currency debasement is a contrasting environment that would be just as supportive of gold.
Grosskopf thinks that investors have plenty of incentive to add more gold to their savings. He, like Kung, took note that investment demand has poured in from all sides, ranging from various funds to high-net-worth individuals. According to Grosskopf, this could create more demand than the market is prepared for, not unlike the bullion supply glut that occurred earlier this year, as investors scrambled to get their hands on the metal. This, along with the explosive increase in debt in order to accommodate fiscal deficits, could bring gold to a range between $1,900 and $2,000 before the end of the year, says Grosskopf.