Gold price around $1,900 is waiting for another stimulus package and it will come - Aberdeen Standard Investments
(Kitco News) - Gold prices churning around $1,900 lacks direction because politicians can't find enough common ground to pass another comprehensive stimulus bill. Still, one market analyst said that investors need to look past the current noise.
Steve Dunn, head of exchange-traded products at Aberdeen Standard Investments, said in a telephone interview with Kitco News that investors probably shouldn't expect any significant aid bill to come before the Nov. 3 U.S. general election. However, he added that a comprehensive package would eventually come and that will be good for gold.
Although the U.S. economy has seen a sharper-than-expected recovery from the March lows, Dunn said that the growth environment is delicate and the economy needs further government support.
"Maybe it's a better situation today than it was in March or April, but you consistently hear about some of this lingering pain," he said. "From that standpoint, the economy is very fragile. If you get the slightest hiccup, then the recovery can quickly go the other direction."
"The reality is that there is going to be a package that's passed and it's going to be quite significant," he added.
Looking at gold prices, Dunn said that the precious metal continues to be well supported and it wouldn't take much to drive prices back above $2,000 an ounce by the end of the year. He added that for 2021 his firm's bullish case sees the potential for prices to push to $2,300 an ounce.
"I'd be really surprised if we didn't challenge the levels that we saw in August before year-end," he said.
Dunn said that the biggest driver for gold and silver through 2021 will be low interest rates. The Federal Reserve has said that it expects to keep interest rates at the zero-bound target for the next three years.
"If we get any hint of inflation, that's being driven by stimulus money, or that kind of stuff, you know, real rates are going to go negative, which is a very good scenario for gold," he said. "The stimulus is probably the shot in the arm that gold needs to start to retrace to some of those highs that we saw in August."
Dunn said that gold will also continue to be an important diversifier and risk hedge against equity markets that remain overvalued and precarious.
He added that although equities have seen a significant bull run since the turmoil in early spring caused by the COVID-19 pandemic, the rally doesn't reflect real economic strength.
"The equity markets are more concentrated today than they've ever been. And there is going to be more trouble when there's more pain," he said. "In the short and intermediate-term, we could see a lot more economic pain that absolutely reinforces why you would want to have gold in your portfolio."
Looking at the silver market, Dunn said that the precious metal still offers significant value for investors. He added that Aberdeen expects prices to range between $24 and $27 an ounce in 2021. He said because of the ongoing uncertainty surrounding the global economy; silver will take its cue from gold prices.