Gold has been steadily marching higher this year as investors flock to safe havens amid the coronavirus pandemic, the ensuing recession, uncertainty surrounding economic recovery, geopolitical strife, and an impending presidential election in the U.S.
And this week, amid all this drama, the shiny yellow metal rose to a new all-time high. Bullion for immediate deliver rose to $1,968.39 an ounce today, while spot metal reached a record of $1,981.27 on Tuesday.
As of this writing, gold sits at $1,959, within striking distance of $2,000.
“We think the current momentum in the next few months will cross the $2,000 an ounce mark,” said Commonwealth Bank of Australia mining and energy commodities analyst Vivek Dhar. “The key question is how much does the rally increase after that?”
With gold bugs watching for the precious metal to roll over that big $2,000 mark, Goldman Sachs this week ditched its $2,000 price forecast and says gold will now reach $2,300 an ounce within the next 12 months – more than 17% higher than the current price.
Driven by “a potential shift in the U.S. Fed toward an inflationary bias against a backdrop of rising geopolitical tensions, elevated U.S. domestic political and social uncertainty, and a growing second wave of COVID-19 related infections,” gold’s rise to new highs recently has outpaced gains for real rates and other alternatives to the U.S. dollar, said a team of Goldman analysts led by Jeffrey Currie.
“Combined with a record level of debt accumulation by the U.S. government, real concerns around the longevity of the U.S. dollar as a reserve currency have started to emerge,” Currie said.
Currie and his team added that commodities and stocks as hedges against inflation are likely far cheaper currently than they may be in the future when inflation begins to pick up. With debt rising and the value of currencies falling, the current situation is sowing “the seeds for future inflationary risks despite inflationary risks remaining low today,” the team wrote.
Bloomberg Intelligence senior commodity strategist Mike McGlone told Kitco News that the gold market is looking a bit stretched and will likely be rangebound around $2,000 before heading much, much higher.
“In the short term, we have gold about 21% above its 52-week mean, that’s the most since the peak in 2011,” McGlone said. “You don’t want to be the first buyer at these levels. Anytime gold gets this high above its 52-week average, you got to expect consolidation.”
McGlone argues that while gold investors should be strategic with their buying, they shouldn’t lose sight of what’s on the horizon: a gold rally that could see prices around $4,500 an ounce.
“Basically, after 2008, gold dropped around $700 and then it rallied around three times to the peak in 2011,” McGlone said. “So just a simple rhyme of history means we get to near $4,500 and it’s about time. You just have to look at debt to GDP, look at central bank balance sheets, and they’re just on an upward trajectory.”
“Now the rock is beating stocks,” McGlone continued. “There’s a sense in the market that the bull market in stocks is over… and gold should take off. That, to me, is the next big trade.”