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(Kitco News) Given the magnitude of the gold price rally this past month, there are several outcomes that investors need to be prepared for.
And as gold attempts to hold the $2,000 level, MKS PAMP identified key upside and downside gold price targets.
"We know the story and the narrative of why it's been a respected bull trend since Nov 2022 (slower Fed, inflation, economic slowdown, banking/crisis of confidence, rotation of wealth, de-dollarization etc)," said MKS PAMP's head of metals strategy Nicky Shiels.
In the last month, gold quickly blew past $1,900 and $2,000 levels and marked new record highs in many currencies, including the Australian dollar.
"This has been a statement repricing (eerily similar to the 2020 & 2022 moves in size/pace) indicative of a macro regime shift," Shiels noted. "Typical low volatility, safe haven, reserve currency assets such as gold, usually do not gap into new territory unless there's conviction, even despite the liquidity shortcomings. So where can pricing go?"
MKS' upside targets are $2,070-$2,075, $2,200, $3,200, $3,500, and $3,600. Gold's downside targets are $1,900-$1,920, $1850, $1,780, and $1,560-$1,600.
Shiels described the $2,070- $2,075 range as a double top that gold needs to cross for the rally to continue. It marks a 2022 and 2020 high.
At the $2,200 level, gold would reach a bull market status, up 20% on the year. "[It is] surely not unreasonable if the Fed pivots as economic growth and/or something else (larger) in the financial or broader economy breaks forcing their hand," Shiels said in a note.
The $3,200 upside target would be gold doubling from this cycle's low of $1,600 an ounce. "Gold roughly doubled from Lehman low to the 2011 peak of $1,921 within roughly three years as the Fed launched QE," Shiels explained. "Mimicking 2008-2011 takes gold to $3,200 by 2025,"
The $3,500 target would require a more extreme scenario, including massive global debt, surging inflation, and fiat currencies being reconsidered. "Gold is very elastic to the surges in the U.S. government's federal debt (yearly correlation since 1971 is +0.91!), which is expected to almost double to 200% of GDP by 2050 (CBO); that puts the model implied gold price at $3500," Shiels said.
In the $3,600 scenario, Shiels described "the massive structural breakout in the XAUJPY, where prices extended 75% above a long term ceiling, is a preview of what 'could happen' in XAUUSD."
On the downside, the first significant support for gold is the $1,900-$1,920 range. "There are a series of important events that occurred in the low $1,900. Russia invaded Ukraine when gold was $1,900 and the U.S. first slapped sanctions on the Russian CB at $1,920," she said.
At $1,850 the collapse of Silicon Valley Bank happened, triggering the banking crisis and the latest jump in the gold price.
If gold retreats to $1,780-$1,800, market sentiment suffers, Shiels said. "Those reversals from peaks in 2011, 2020 and 2022 were incredibly steep and sharp, with prices falling 20% / 10% / 8.5% in 14 /3 / 6 days, respectively. On average, a similar reversal would take gold down $250+ / 13% in 8 days to $1,780."
And the last downside level listed is $1,560-$1,600, which marks gold's price floor. "It's the base from which the current bull market trend has formed after the Fed ended its 75bp hiking regime, and coincidentally (or not) also somewhat coincides with the level when COVID 1st emerged in China; that was the ultimate game-changer/backdrop to the current setup," Shiels added.
At the time of writing, June Comex gold futures were trading at $2,007.60, down 0.41% on the day.
