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Gold price target of $2,300 is conservative as precious metal sees healthy consolidation - State Street Global Advisors

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(Kitco News) - The gold market remains in a healthy consolidation pattern as prices are once again close to testing critical resistance at $1,850 an ounce, according to one gold market analyst.

In a recent interview with Kitco News, George Milling-Stanley, chief gold strategist at State Street Global Advisors, said that he is not disappointed with gold's recent price action as the precious metal saw its first negative start to the year since 2013.

He added that gold's consolidation pattern is helping to remove some of the froth from the marketplace after gold prices pushed to record highs above $2,000 an ounce. He explained that last year gold prices rallied more than $500 an ounce to the new record, and it's going to take some time for the market to adjust to a new price paradigm.

He also noted that although gold is in a consolidation phase, it is finding strong support around $1,800 an ounce. The gold market continues to show resilient strength even as investors become more optimistic that COVID-19 vaccines and new government stimulus will help the U.S. and global economies recover at a faster pace than some economists are expecting, he said.

"The good news is it found solid support in the area between $1,750 and $1,800," he said. "I think that we're doing the necessary work building a foundation before we move higher."

Milling-Stanley said that although the U.S. is vaccinating around one million people per day, he doesn't think it will be enough to boost consumer confidence enough to support the beleaguered economy. He noted that there are still many people who will have to wait until the fall to get a vaccine. This waiting period will continue to weigh on the economy, he added.

"In this country, we need somewhere close to 700 million doses of vaccines. I don't think anybody is realistically going to be able to deliver anything like that until late-summer or fall," he said.

Milling-Stanley said that the risk is that as consumer optimism grows, there will be pressure to reopen the economy too quickly. The nation could be hit with another significant wave of infections, further prolonging the eventual economic recovery.

"In North America and Western Europe, we are making a terrible go of reopening our economies. In my view, that means there's going to be no reduction, no drop-off in investment demand for gold," he said.

Milling-Stanley explained that as long as the U.S. and global economies continue to feel the devastating effects of the COVID-19 pandemic, central banks will be in no hurry to raise interest rates. Low to negative real yields will continue to support gold prices, he said.

Milling-Stanley said that he also expects geopolitical uncertainty to support safe-haven investor demand for gold along with the ongoing economic concerns. Although the U.S. has a new president, Milling-Stanley said he doesn't expect to see a significant shift in American politics.

According to some economists, President Joe Biden has already frustrated some allies with executive orders to promote "buy American" initiatives.

Milling-Stanley said there would also be a lot more focus on domestic issues to support gold prices. He explained that he expects rising social unrest to be a significant issue that will impact the economy and financial markets.

Milling-Stanley highlighted that Biden wants to improve health care, income inequality, improve the nation's infrastructure and deal with climate change.

"Fixing these issues in the U.S. is going to be very expensive," he said. "Every single one of those looks expensive to me. It is going to lead to is bigger deficits, bigger debt, and therefore dollar depreciation."

With all this uncertainty in the marketplace, Milling-Stanley said that he remains optimistic that gold prices can push to new highs this year. He added that estimates for prices to move to $2,300 could be considered as conservative in the current environment.

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.