Gold price headed to $5,500 in the long term as central banks won't be able to exit unorthodox monetary policies - Jefferies
(Kitco News) - The Federal Reserve's potential plan to reduce its monthly bond purchase by the end of the year continues to weigh on the gold market as prices remain tethered to support around $1,750 an ounce. However, one investment firm continues to see gold prices pushing thousands of dollars higher in the long-term.
In a report published Tuesday, investment bank Jefferies Group said that gold and Bitcoin remain essential hedges as the threat of stagflation – an environment of low growth and higher inflation – continues to grow.
Although the market continues to struggle in the near-term, analysts at Jefferies said that their long-term forecast remains in place for gold prices to push to $5,500 an ounce.
"This has been derived by comparing the January 1980 peak gold price of US$850/oz with the increase in US nominal personal disposable income per capita since then. The gold price was then equivalent to 9.9% of US disposable income per capita which was $8,547. The gold price is now $1,757/oz or 3.2% of US disposable income per capita of $54,671," the analysts said. "Still, in the near-term gold will remain vulnerable to tapering concerns."
the firm remains bullish on gold as central banks discover that it is easier to embark on unorthodox monetary policies than it is to exit them.
"The long-term view here remains the same as it has been for many years. That is that G7 central banks, including most importantly the Federal Reserve, will not be able to exit from unconventional monetary policy in a benign manner and will ultimately remain committed to ongoing central bank balance-sheet expansion in one form or another. Such policies will increasingly discredit those central banks which have pursued unconventional monetary policy, threatening the stability and indeed integrity of the current fiat-paper-money system," the analysts said.
Along with gold, the firm also sees potential for bitcoin prices to rise as fiat-currencies are debased. The firm's global portfolio for US-dollar-based long-term global investors hold's 5% in the crypto currency.
"The allocation to Bitcoin has been introduced because it has become clear that it represents a legitimate alternative for risk averse capital looking for a store of value, amidst accumulating evidence of policies of currency debasement in the G7 world," the analysts said.
"It should also be emphasized again that the investments in gold and Bitcoin are viewed as insurance, not as short-term trades. This is a long-term portfolio, which seeks to balance the long-term risks and opportunities in the current global context," the report added.