Jebediah Springfield was, in actuality, the murderous Hans Sprungfeld and much like the herd mentality that led the town of Springfield to whack snakes in his honour, a rising gold price has embiggened analysts to pump up their forecasts.
It used to be a hearty joke told by aristocrats around the fireplace to disinterested servants that gold could bound beyond US$3000 an ounce.
Now, as the world collapses under geopolitical strife, central banks stock up for the apocalypse and eager beavers bay for rate cuts from the US Fed even conservative assessors are touting a move beyond US$2500/oz.
ANZ this week said it expects gold to trade near US$2500/oz by the end of 2024 (and silver to a decade long high of US$31/oz). Goldman Sachs has a US$2700/oz price target by year end, up from US$2300/oz previously.
The Victor Smorgon Group has seen its gold fund return 13.9% in March and 38.2% since its May 2020 inception, outperforming the ASX Gold Equities Index by 43.0%. Here’s the composition difference between the two:
Its executive chair Peter Edwards and co-CIO Joseph Sitch reckons gold could move to US$2500/oz with hints of recessionary scents wafting through the air.
“Heightened geopolitical tensions in a key election year for global economies, combined with strong central bank buying, should provide further support for the gold price,” they said.
“A recession has historically rewarded gold, averaging a price gain of around 13% in the past seven recessions, which implies a price of around US$2,500/oz.
“Together with the fact that gold ETF demand has not matched the rise in the gold price suggests that there is still significant potential upside for gold.”
Gold closed Thursday at US$US2383.70/oz on the LBMA, but caught new wind in futures markets on Friday after a reported missile strike by Israel on Iran.
Tailwinds for gold
ANZ’s Daniel Hynes and Soni Kumari had previously seen gold going to US$2300/oz by the end of the year. They now think it could go even higher to US$2500/oz by December, US$2550/oz by next March and US$2600/oz by next June.
For reference gold averaged just US$1926/oz in 2023 — at that point an all time year high.
Between ANZ and World Gold Council data, they see gold demand and supply eclipsing 5000t for the first time in 2025.
But are there naysayers? You betcha
Of course not everyone can be convinced as the gold trade flips from contrarian bet to conventional wisdom.
RBC Capital Markets commodity strategist Christopher Louney warned gold looks ‘overvalued’ by more traditional macro drivers while bulls focused on safe haven demand, central bank demand and physical premia.
“Gold prices have rallied to record highs with market participants, ourselves included, attributing much of the driving force to be strong central bank demand, strong Chinese consumer demand, physical demand generally (take the Costco gold bar sales stories as an example), and geopolitical risks given ongoing conflicts in both Europe and the Middle East, never mind other potential flashpoints,” Louney said.
“All this time, however, we have cited gold as still holding inherent vulnerabilities. This is for a few reasons.”
He argued the current drivers for higher gold prices were not usually those most predictive of movements historically.
“It is important to stress here that these are relevant factors for gold, but rarely in recent times are they the overriding drivers of price or the most predictive parts of models on a sustained basis” Louney said.
“Gold models often rely much more on macro drivers like rates (which remain high), the dollar (which remains strong) and other items.
“By most of those measures, gold is actually quite overvalued, especially when looking at single factors. But even when using a blended model like ours for example, gold still looks overvalued versus our high scenario (never mind our middle scenario). Perhaps this is a signal to readjust our expectations? Or perhaps the gravity indicated by macro drivers is just not important right now?”
Louney cautioned that RBC “certainly may be wrong”, but noted poor investor interest in ETFs outside of Asia showed there could still be a reckoning for the bull run.
RBC’s high scenario has prices averaging US$2248/oz in 2024 and not lifting to current levels sustainably until 2025, when it sees high scenario averages of US$2394/oz.
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