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'Convincing move higher' in gold: TD Securities looks for $2,000+ gold price next year

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(Kitco News) Gold's best days are still ahead of it, according to the TD Securities outlook, which is looking for the precious metal to keep rising throughout 2021 and 2022.

TD Securities is long gold and silver in its outlook, highlighting inflation expectations, Fed's flexible average inflation targeting, currency debasement fears, weaker U.S. dollar, and lingering economic concerns as some of the main drivers.

"Gold enthusiasts may not need to wait much longer for a convincing move higher. The combination of a commitment to the zero bound and a flat yield curve should be a bullish catalyst, as it caps short and long-term rates at the same time as fiscal stimulus and vaccines drive economic normalization. This suggests that the market should see a boost in inflationary expectations, leading to a renewed downtrend in real rates and a positive outlook for gold," TD Securities commodity strategists said.

The bank's outlook sees gold trading on average around the $2,050 an ounce mark towards the end of next year and then climbing towards $2,225 on average by the end of 2022.

"The big picture is still very conducive to $2,000+ gold. Even if the planned vaccination programs go without a hitch, it will take well into H2-2021 before herd immunity is achieved and the economy normalizes," the strategists said. "Meanwhile, the second wave of COVID-19 infections will ravage the economy, assuring that the U.S. and indeed global economic activity is below potential for a prolonged period."

The winter of 2021 will be a difficult one from the perspective of rising coronavirus cases and economic data. "Historically, this means a good time for gold and a reduction in risk appetite," the strategists noted.

On top of that, more fiscal stimulus will be added into the economy, which will boost inflation expectations and work in favor of gold next year, TD's outlook pointed out.

"Based on the nomination of Janet Yellen for the Treasury Secretary of the United States role, it is likely that the Biden Administration policies should be quite tilted to robust fiscal stimulus," the strategists wrote. "This should continue to maintain currency debasement concerns, one of the key reasons investors buy gold as protection."

The outlook also stated that the mining supply will grow only modestly. "Although M2 and credit have grown massively, we foresee significantly less gold per unit currency in the world. Gold supply is constrained by ore grades, capex investment, and environmental concerns," the strategists noted.

Even though all signs are pointing to $2,100 gold over the next 12 months, TD Securities advises investors that it will be a bumpy road getting there.

The bank's outlook on silver is similarly positive, projecting a move to $30 next year.

"Silver tends to do well when there is a favorable environment for gold. As such, it should respond positively to the same favorable macroeconomic, monetary conditions and fiscal drivers as does the yellow metal," the strategists wrote.

Due to its volatility, silver is also estimated to outperform gold next year. "At the current 77 gold-to-silver ratio, the white metal is cheap when compared to its relative value over time," the outlook said.

On top of the macro drivers, there is also the post-COVID industrial recovery, which will benefit silver. "Over 60% of silver demand comes from industrial sources," the bank said. "Expenditures on green energy infrastructure, decarbonization, and electrification should all help silver as it is very much used in solar panels and virtually all electrical circuits."

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