Gold Price of Almost $3,000/Oz Needed to Claim the Record
The comments below are an edited and abridged synopsis of an article by Tim Treadgold
Gold at $3,000/oz sounds optimistic, but there are two reasons to take that price seriously. The most important is that gold needs to get close to $3,000 before it reaches a genuine all-time high.
The other reason is that the bank forecasting $3,000 knows more about gold than most of its rivals, thanks to its deep exposure to the gold-rich Canadian mining industry.
RBC Capital Markets recently raised its forecast for gold to $3,060/oz by the first quarter of next year, thanks to soaring demand for the metal.
Key to the forecast is a significant change in the attitude of investors towards gold, thanks to the Covid-19 crisis, economic turbulence and extremely easy monetary policy.
Comments from RBC will be music to the ears of gold enthusiasts, but the ultimate arbiter of gold matters—the World Gold Council—might not agree because of the important role played by inflation in monetary assets.
The WCG reckons that gold in today’s dollars needs to reach approximately $2,800/oz to set a new record.
Adjusted for inflation, gold today is approximately $200/oz below its 2011 official peak of $1,895/oz, and well below its January 21, 1980 record high of $843/oz, which is approximately $2,800 in today’s money.
RBC described gold as being a ‘freight train’ on a winning streak not seen in years, which had moved the goal posts as far as its previous gold price forecasts.
But there is a warning for investors just arriving at the gold boom, because physical demand for the metal has collapsed, meaning that almost all of what’s happening is a financial market event that could fade as quickly as it arrived.
“According to the WGC, gold demand fell by 11% in the June quarter and 6% in the first half of the year,” RBC said. “The investor certainly carried the day with record inflows into ETFs for example, but fewer central banks added gold and there’s no way around it, consumer demand is extremely weak.”