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Gold price can push to $1,850 even as bond yields surge to 2% - Invesco

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(Kitco News) - The gold market could continue to struggle in the near-term as investors adjust to rising interest rates. However, according to one market strategist, the yellow metal will remain a vital portfolio diversifier through 2021 and beyond.

With the U.S. economy expecting to see a robust recovery from the COVID-19 pandemic, it is not surprising that bond yields are rising sharply, said Kristina Hooper, chief investment strategist at Invesco. She added that the 10-year yield has room to move to 2% in the current economic environment.

"We're likely to hit 2%. But we're also going to be getting more positive earnings reports. We're also going to get improved economic data," she said. "So far, nothing we have seen has been disorderly. Rising rates is what we should expect in an improving economic environment."

Although the Federal Reserve has been quiet regarding the potential to launch a yield curve control program, Hooper said that if rising bond yields lead to tighter fiscal conditions or disorder in financial markets, then the central bank will be quick to act.

She said that this potential guardrail in bond markets would provide critical support for gold prices through 2021.

Hooper said that even if bond yields continue to rise, they probably won't go much higher than 2%, which is still extremely low by historical standards and a positive for the gold market.

Although improving economic conditions will weigh on the precious metal, Hooper added that she still has a modest upward bias for the yellow metal as economic growth will push inflation higher. She said that she sees gold prices moving to $1,850 an ounce by year-end.

"I am not concerned about inflation, but that doesn't mean that the rest of the world isn't concerned. We're clearly seeing a lot of fear about inflation. So this is what is going to drive the popularity of gold," she said.

Along with the threat of rising price pressures, Hooper added that gold also remains an attractive safe-haven asset as geopolitical tensions continue to grow.

This past week the U.S. has strained relations between Russia and China.

"We know that gold has also historically been a hedge against geopolitical risk," Hooper said. "We could see the current environment create some upward price pressure for gold through the year."

Looking at diversification against record valuations, Hooper said that gold continues to be the best insurance policy, even if investors are turning to alternative assets like bitcoin and other cryptocurrencies.

Although bitcoin has been competing with gold for investment capital, Hooper said that she doesn't think this trend will last, especially if equity markets enter a new correction phase. She noted that bitcoin had a much higher correlation with the S&P 500 compared to gold's relationship with the broad equity index.

"If investors are looking to diversify their portfolio and especially if they're concerned about greater volatility in the S&P 500, bitcoin is not their answer," she said.

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.