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$3,400 gold price target still intact but 'nothing goes straight up forever' - VanEck

Kitco News

This gold price correction is just a case of price consolidation, and the longer-term bullish picture still remains intact, said Joe Foster, portfolio manager of the VanEck International Investors Gold Fund, who maintains a $3,400 an ounce price target.

“We’ve been looking for a pullback in the gold market. Nothing goes straight up forever. We had a very strong run, well over $2,000 an ounce, so we were expecting to see some consolidation in the markets and I think that’s what we’re seeing today,” Foster told Kitco News.

Spot gold last traded at $1,916.80, down 5.5% on the day.

Interest rates remain the fundamental long-term driver for a bullish gold story, according to Foster.

“You begin with interest rates. Real interest rates are negative. They turned negative last year when the Fed started cutting rates. If you look historically, that doesn’t happen very often. Real rates were negative after the financial crisis, and you have to go all the way back to the 1970s in that inflationary cycle to find negative real interest rates. The Fed has told us that it’s not interested in raising rates any time soon, so I think we’re going to be in a negative real rate environment for the foreseeable future and that’s a very good backdrop for gold,” Foster said.

Geopolitical risks, a weaker dollar and the increase of global debt are also tailwinds for gold, Foster noted.

“We could be seeing the beginnings of a bear market for the dollar, and that’s another bullish development for gold,” he said.

VanEck’s $3,400 an ounce price forecast is based on historical deflationary price cycles.

“There aren’t very many to draw on. You can go back to the Depression, but more recently, we look at the Financial Crisis in 2008. That was a deflationary shock to the economy, just like the pandemic has been a deflationary shock to the economy,” he said. “If you look at where gold went after the Financial Crisis and you apply the same metrics to gold in the current environment, you can get to over $3,000 an ounce.”

On gold stocks, Foster said that miners are expected to outperform the bullion.

“I think the stocks will outperform gold by a wide margin. We’re seeing it this year, we saw it last year. The gold industry is in very good shape this year. It’s very healthy. It’s a great business to be in, so I see no reason for these stocks to handily outperform gold,” he said.

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