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This is the catalyst that could take gold price to $2,100 after selloff - ANZ

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(Kitco News) The market's equity and crypto boom has left gold in the dust so far this year, but one catalyst could turn things around and take gold prices as high as $2,100 this year, according to Australia and New Zealand Banking Group (ANZ).

Gold is back below $1,800 an ounce this week as prices struggle to maintain gains amid rising Treasury yields. Gold is down 3.5% in the last 30 days and down 7.5% in the past six months. At the time of writing, April Comex gold futures were trading at $1,784.30, down 0.76% on the day.

Despite this lackluster performance, ANZ remains positive on gold, citing one specific driver that could boost gold back to its record highs.

"The real instigator of another leg up in prices will be the expectation around inflation, and certainly that is something that is raising heads of late," ANZ senior commodity strategist Daniel Hynes. "We are starting to see energy prices rise. Freight container rates and shipping costs are also rising quite strongly. We saw PPI in China pick up recently. There is some concern that higher prices will start to manifest itself through the global supply chain as the global economy improves."

Right now, markets are not paying enough attention to inflation concerns, Hynes said, noting that this might change in the medium-term.

"Inflation story is bubbling away in the background, but it will start to gain more focus for investors. Inflation expectations are picking up, which would provide a solid support for investor demand over the medium term. That will continue to benefit the gold sector," Hynes said.

The Federal Reserve reiterated multiple times that it does not see inflation as a concern and is willing to let it run higher. This sets up an advantageous scenario for gold in the long-term.

"The Fed said they would rather see things overshoot. That is going to give plenty of scope for the continued reflation trade to play out," Hynes said.

On top of the inflation factor, low interest rates along with more monetary and fiscal stimulus will keep gold prices elevated this year.

"Our year-end price targets for gold is $2,100," Hynes said.

So far, a variety of issues have been putting pressure on gold, including optimism around the vaccine rollout, economic recovery, and the crypto competition, the strategist added.

"U.S. dollar strength in recent times has certainly been a significant headwind. The rising yields as well in the U.S. Treasury market. Also, buoyant equity markets. And you can't ignore cryptocurrencies anymore. The cryptos are starting to affect as more institutional funds move into the space. That is probably taking a dent of gold's appeal as well," Hynes said.

The most significant short-term obstacle for gold has been rising 10-year Treasury yields. This is a signal that things are getting better, Hynes pointed out.

"The economic recovery globally has had its ups and downs, but the vaccine rollout, further stimulus measures in the U.S. have raised parts of that recovery, accelerating it, and that has certainly seen the selloff in the bond market," he said. "The risks of further economic weakness have abated, and that safe-haven appeal that gold extends has certainly not been supportive."

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