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Gold price to end the year at $2,000 – Capital Economics

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(Kitco News) - Bullish sentiment in the gold market remains healthy even as prices have fallen two a two-month low, according to one research firm.

In a report published last week, commodity analysts at Capital Economics said it expects gold prices to end the year higher after raising its year-end target.

Samuel Burman, assistant commodities economist at the U.K.-based research firm, said in the report that they now see gold prices end the year at $2,000 an ounce and they see prices ending 2021 at $2,100 an ounce. The new year-end target is up from the previous estimate of $1,900 an ounce.

The comments come as gold prices saw their worst selloff since collapsing in March due to the global COVID0-19 pandemic. Gold prices dropped below $1,900, falling nearly 5% last week. Burman said that gold is struggling against rising momentum in the U.S. dollar, which hit a 2-month high last week.

However, Burman said that lower real yields will eventually weigh on the greenback and boost gold prices.

“As gold pays no income of its own, its attractiveness as an asset is determined by real yields on competing safe-haven assets, such as US Treasuries. Real yields have plummeted in recent months as a result of the collapse in nominal yields and a revival in inflation expectations,” he said in the report. “We think that the price of gold will drift upwards through to the end of 2021 as real yields edge lower, which could weigh on the value of the US dollar.”

With the Federal Reserve signaling that it expects to hold interest rates at the zero-bound range through 2023, Capital Economics said that it sees nominal 10-year yields ending the year at 50 basis points and remaining there for the foreseeable future.

“This fall, in conjunction with higher inflation expectations as the US economy recovers, will mean that real yields will decline,” said Burman.

Along with rising inflation expectations and lower real yields, Burman said that they see gold prices pushing higher by the end of the year as investors continue to look for safe-haven assets in a world that has been devastated by the coronavirus.

“If COVID-19 is not brought under control soon, ETF demand could rise further, which would provide an additional boost to the price of gold,” he said.

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