SMM: although the price of gold has fallen to a two-month low, the bullish mood in the gold market is still healthy, a research company said.
In a report released last week, commodities analysts at Capital Macro (Capital Economics) said gold prices were expected to rise by the end of the year after raising their year-end targets.
Samuel Burman, an assistant commodity economist at the UK-based research institute, said in a report that they now expect gold prices to reach $2000 an ounce by the end of this year and $2100 by the end of 2021. The new year-end target is higher than the previous estimate of $1900 an ounce.
The comments come as gold prices experience their worst sell-off since the global novel coronavirus outbreak in March. Gold fell below $1900 an ounce last week, down nearly 5 per cent. Gold is battling the upward momentum of the dollar, which hit a two-month high last week, Burman said.
However, Burman said lower real yields would eventually put pressure on the dollar and push gold prices higher.
Since gold itself does not pay income, its attractiveness as an asset is determined by the real yields of competing safe-haven assets, such as US Treasuries. Real yields have fallen sharply in recent months as nominal yields have plummeted and inflation expectations have rebounded.
"We believe that as real yields fall slightly, gold prices will continue to rise until the end of 2021, which could put pressure on the value of the dollar."
The Fed said it expected interest rates to remain unchanged at zero until 2023, while Capital Macro expects nominal yields on 10-year Treasuries to remain at 50 basis points by the end of the year and at that level for the foreseeable future.
"this year's decline, coupled with rising inflation expectations from the US economic recovery, will mean lower real yields," he said. "
Burman said it expected gold prices to rise by the end of the year amid rising inflation expectations and falling real yields as investors continued to look for safe havens in a world devastated by the coronavirus.
"if novel coronavirus is not brought under control soon, ETF demand may rise further, which will further push up the price of gold," he said. "
