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Rising inflation risks could push gold prices 10% higher in 2020 - Invesco

Kitco News

(Kitco News) - Global central banks are too complacent on inflation heading into 2020, and that will create a good environment for gold, according to one chief market strategist.

Kristina Hooper, chief investment strategist at Invesco

In a telephone interview with Kitco News, Kristina Hooper, chief investment strategist at Invesco, said she expects the U.S. economy to grow only around 2% in 2020, but that will be enough to drive inflation pressures higher, boosting gold prices.

Although Hooper said that she is not forecasting a recession for next year, she does see slower activity in the first half of the year, finding new momentum in the second half.

However, long-term Hooper said that investors need to keep their eye on consumer price pressures next year.

“We are starting to hear concerns about commodity prices rising,” she said. “Central banks have set a really high bar for inflation and I think that is going to be good for gold.”

In the current environment, Hooper said that she could see gold prices well above $1,600 by the end of 2020, representing a gain of 10% from current prices.

Higher inflation pressures are positive for gold because it pushes down real bond yields. Gold’s opportunity costs as a non-yielding asset improves in a low to negative interest rate environment. Hooper added that because of the Federal Reserve’s three rate cuts in 2019, it wouldn’t take a lot of inflation to push real bond yields in negative territory.

U.S. Treasury data shows that real yields on 10-year bonds, are preparing to end the year at the bottom of its recent trading range at 50 basis points. Real bond yields have fallen more than 50% since the start of the year even as inflation pressures have been muted.

“Central banks have made it very clear that they are going to be tolerant of higher inflation,” she said. “The Federal Reserve has set the inflation bar pretty high and I think it will only get higher next year as we see a dovish shift on the board.”

Hooper added that even if the Federal Reserve maintains its current level of monetary policy accommodation will enable the potential for higher inflation.
While inflation is expected to provide critical support for gold next year, Hooper also warned investors to expect a lot of volatility. She explained that geopolitical uncertainty will continue to dominate financial markets next year and will be another catalyst to drive gold prices higher.

“Nothing has been resolved. We have a fair amount of geopolitical uncertainty around the world and it continues to grow,” she said.

Another trend that Hooper is watching in 2020 is equity markets. She noted that her growth forecast will continue to support the historic bull run in stocks but she added that this will have little impact on gold as investors look to the precious metal for important diversification.

“We are enter another leg of the bull market where there is greater investor acceptance of stocks as attractive assets but at the same time they acknowledge the higher risks,” she said. “I think it is natural that at this point in the bull market, investors become interest in gold.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.