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Gold price undervalued, could rise to $2,000 an ounce in Q2 - ANZ Bank

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(Kitco News) - The gold market is struggling to find traction as massive volatility and uncertainty roil financial markets and investors; however, one Australian bank sees upside potential for gold in the next three months.

In a report published last week, ANZ bank said that according to its estimates, gold prices are undervalued. The analysts said that they see prices pushing to $2,000 by the second quarter and then leveling off to end the year at $1,700 an ounce.

The updated outlook comes as gold prices have been unable to maintain recent gains, and even maintain support around $1,500 an ounce. Market analysts have noted that gold has seen renewed selling pressure as panic sweeping through financial markets is prompting investors to “sell everything.”

April gold futures last traded at $1,505.40 an ounce, down 0.75% on the day. ANZ said that in the current environment, fair value for gold is around $1,600 an ounce.

Although inflation pressures are expected to be nonexistent for the foreseeable future, analysts said that low bond yields and a weak U.S. dollar will make gold an attractive asset.

“Our gold-valuation model suggests current spot prices are actually slightly undervalued. Moreover, while net-long investor positioning is reaching record levels, technically it doesn’t look overbought,” the analysts said. “If we plug in conservative estimates of inflation, interest rates and USD, the near-term valuation looks even higher.”

The upgraded outlook came before the Federal Reserve slashed interest rates to zero and introduced new quantitative easing measures in an emergency move Sunday. However, the analysts said that because of the growing economic risks due to the spreading coronavirus, they were expecting to see looser monetary policy in the near term.

“Synchronous central-bank rate cuts are the key to supporting gold investment demand. This has significantly raised the probability of gold breaking above USD2,000/oz,” the analysts said in the report.

Looking at U.S. bond prices, the bank said that it sees the yield on 10-year U.S. Treasuries holding around 0.5% for the next few months.

“This leaves real interest rates in negative territory, creating a favorable backdrop for non-yield gold investments,” the analysts said. “Lower is clearly possible in the current circumstances, but we think the market has priced in a lot of bad news.”

The comments come as bond yields have pushed off their recent lows, but still remain under 1%, last trading at 0.82%.

Looking at the U.S. dollar, ANZ analysts said that they expect to see lower prices as the Federal Reserve loosens its monetary policy. However, analysts also warned that U.S. dollar will be extremely volatile as investors continue to search for safe-haven assets.

Currently the U.S. dollar index is down 0.63%, recovering some of its losses after the Federal Reserve’s surprise Sunday announcement

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.