Gold could be driven by FOMO, 'stagflation' to $US2300 by early 2021

The gold price predictions continue to climb, with things like FOMO and “stagflation” tipped by one expert as the catalyst for gold to hit “$US2200 to $US2300 by early next year”.

Gold prices are holding strong above the $US1,800 ($2,598) an ounce mark and the signs are pointing to continued growth ahead.

Jon Deane, chief executive officer of gold fintech InfiniGold, told Stockhead that despite a number of sell-offs while gold was making its steady way upwards, there were always people ready to jump back in to support the market and send it higher.

He added that over the medium to long term, there were a number of things to consider.

“One is obviously the money supply, which is well documented,” he said.

Central banks across the world have embarked on ambitious stimulus programs — which is effectively printing money, such as Australia’s Jobkeeper program, in a bid to offset the impact of the COVID-19 pandemic on the economy.

“The other thing, what I think is a big driver which we have seen on the back of the pandemic is globalisation been somewhat ratcheted back and manufacturing moving back to domestic locations and what that means for inflation,” Deane added.

The road to ‘stagflation’

Some analysts have argued against inflationary pressures with T.Rowe Price head of Australian equities Randal Jenneke telling Stockhead earlier this week that the real unemployment rate means that inflation is going to be very subdued for the next few years.

However, Deane believes that the move towards local production and lower rates means that inflation can quickly accelerate.

“You couple that with global record levels of sovereign and corporate debt and where the monetary policy is now broken or whether the independence of central banks is being questioned … you can’t raise rates to stifle inflation,” he explained.

Deane notes that the risk “stagflation”, where the economy is experiencing a simultaneous increase in inflation and stagnation of economic output, is a key driver for gold to grow.

“If you can’t raise rates, all hard assets – including gold as a store of value – are looking very bullish,” he said.

Stagflation was first recognised in the 1970s when many developed economies experienced rapid inflation and high unemployment due to the oil crisis.

Equitities could also see a new paradigm, with Deane noting that while historically, multiples of 15x (share price to earnings per share) or so were fine, the amount of cash out there now had to go somewhere.

“So maybe the new norm is multiples of 25x, making equities higher but with a lot worse return,” he added.

FOMO gold trading

So just how far does Deane see gold rising given that analysts have already flagged that $US2,000 an ounce gold is likely before the end of this year?

The former JP Morgan head of Asia Pacific commodities trading noted that clients of every investment and private bank on the ‘Street’ are now being advised to have an allocation of gold.

This is backed by London Capital Group advising investors to hold 15 per cent of their portfolio in gold.

“That was really in the past three to four weeks. That money hasn’t met the market yet,” Deane said.

“That’s going to take time to feed through, but it is a lot of money that comes into the space.

“That could easily push gold through to $US2200 to $US2300 by early next year. Up there it is pretty clean air, it could go anywhere from there.”

Deane adds that on top of that, there would probably be a bit of FOMO (fear of missing out) trade emerging.

“You breakthrough to all-time highs, people see that move … you obviously have a lot of these private banks, high networks accumulating gold positions.”

The silver bulls are also running

Deane is also bullish about silver, saying that it is a kind of leader for gold.

“It is kind of the gamma trade of gold. If silver moves 3-5 per cent, it can accelerate the gold move as well.”

Silver has historically outperformed its better-known counterpart once it has built up some steam.

It went from sub-$US5 ($7.15) an ounce during the 1970s recession to almost $US50 ($71.54) an ounce in the early 80s before repeating the performance following the global financial crisis, running from below $US10 an ounce to over $US45 an ounce in 2011.