(Kitco News) – The stars continue to align for the gold market and with prices reaching historic highs, the next target is $2,000 an ounce, according to one market strategist.
Despite the near-term bullish outlook, Georgette Boele, senior precious metals strategist at ABN AMRO, reaffirmed her year-end gold target at $1,900 and for prices to hit $2,000 an ounce by the end of 2021.
Although the gold market appears to be in an unstoppable rally, in a report Tuesday, Boele cautioned investors that the market is starting to look crowded. She added that the risk is that any shift in investor sentiment could cause speculators to flee the gold market, driving prices down sharply quickly.
“It is likely that gold prices will test $2,000 per ounce in the near-term. But we still expect some profit-taking after that. So, we keep our gold price forecasts unchanged,” she said.
One significant risk for gold is a near-term reversal in the U.S. dollar, which recently fell to a two-year low. However, any short-term correction should be viewed in the long-term bullish environment.
“We still expect a sizeable correction in gold prices in a risk-off environment when the dollar is back in favor,” she said. “It is likely that this correction will be short-lived and be a buy-on-dips for investors eagerly waiting to step in.”
Boele said that she sees five major factors providing long-term support for gold prices: a weaker U.S. dollar, low to negative bond yields, growing government debt, aggressive monetary policy easing and strong technical momentum.
Looking at the U.S. dollar, Boele said that it appears that the greenback is losing its safe-haven appeal as the market deals with geopolitical uncertainty. Along with boosting gold, U.S. monetary policy is also weakening the U.S. dollar as the Federal Reserve continues to pump trillions of dollars to stabilize financial markets.
“Official rates are close to zero in a large number of countries and they will unlikely go up in our forecast horizon,” said Boele, “This sounds like music to the ears of gold bugs as money floods into the market and currencies begin to decline.”
Looking at interest rates, Boele noted that many countries around the world already have negative nominal interest rates. The U.S. has been the biggest hold out; however, Boele said that even if U.S. nominal rates remain positive, real rates are headed to negative territory as inflation expectations pick up.
“As long as there are expectations that the Fed would move to a form of yield curve control, the upside in U.S. Treasury yields is limited. So, if investors are concerned about inflation, in the long run, this will be visible in inflation expectations and negative U.S. real yields,” she said.
Finally, Boele said, along with monetary policy, governments with their fiscal stimulus measure are also adding to the potential inflation threat. However, she noted that inflation won’t be a significant concern for investors.
Author: Neils Christensen