(Kitco News) - Gold’s recent correction appears to have done little to damage its long-term investment case, and with concerns over unsustainable sovereign debt returning to the forefront of global financial markets, one strategist sees $5,000 an ounce by year-end firmly back in play.
However, Aakash Doshi, Head of Gold Strategy at State Street Investment Management, said in an interview with Kitco News that investors should be thinking beyond gold’s next milestone. In the current global fiscal environment, he sees $10,000 gold as ultimately a question of timing rather than possibility.
Doshi’s bullish outlook comes as gold prices have rallied roughly 15% in August, their best monthly performance since January 1999. Spot gold last traded at $4,621.30 an ounce, down 0.79% on the day.
He explained that the “debasement trade” that drove gold to record highs earlier this year never disappeared. Instead, it went dormant as rising interest rates and a stronger U.S. dollar created significant headwinds for the precious metal. (Kitco Global Index shows how much of today's gold move is the dollar versus the gold market itself.)
“At State Street, we never thought it was dead; we just thought it was on pause,” he said. “And now I think it’s alive again.”
Doshi said the renewed momentum comes as several important macroeconomic developments have shifted in gold’s favor. The Federal Reserve has yet to deliver on the market’s hawkish expectations, U.S. labor market data has softened and the Treasury Department’s decision to increase long-term bond buybacks has once again focused attention on America’s deteriorating fiscal position.
He added that gold’s ability to hold $4,000 through its correction and subsequently rally back toward $4,600 to $4,700 has strengthened his conviction that the broader bull market remains intact.
Doshi said State Street’s base-case range is now $4,750 to $6,500 an ounce by early next winter. Within that outlook, he sees the low-$5,000 area — roughly $5,000 to $5,250 — as a reasonable target, with the potential for the move to happen sooner than previously expected.
A dovish shift from the Federal Reserve or another macroeconomic shock could potentially bring $5,000 into play as soon as the fourth quarter, he said.
“We started to see inflows rebound aggressively from Western ETF investors,” Doshi said. “I think there’s plenty of firepower here to go.”
Although monetary policy remains an important tactical driver for gold, Doshi said the much bigger issue facing global markets is the sustainability of sovereign debt.
U.S. government debt recently surpassed $40 trillion, but Doshi said investors should not view the problem solely through an American lens. Fiscal deterioration and rising long-term borrowing costs have become global issues, affecting the United Kingdom, Europe and Japan as governments continue running substantial deficits even outside recessionary periods.
He added that this environment will continue to create broad support for gold as a global monetary asset.
“There is just a concern about the sheer level of debt, the amount of fiscal spending that’s happening during non-recessionary periods,” he said.
This changing fiscal landscape is also forcing investors to rethink one of gold’s most important traditional relationships.
Historically, higher bond yields — particularly higher real yields — have been negative for gold because they increase the opportunity cost of holding a non-yielding asset. However, Doshi said investors now have to ask why yields are rising.
He noted that if yields are moving higher because economic growth is accelerating and investors are increasingly optimistic about corporate earnings, that environment could create legitimate competition for gold. But if yields are rising because investors demand a larger term premium to compensate for inflation, excessive government borrowing and deteriorating fiscal credibility, the implications are considerably different.
In that environment, he said gold becomes less about opportunity cost and more about protecting purchasing power.
“It becomes more, ‘I’m owning gold because of debasement and purchasing power risk and debt monetization risk,’” Doshi said, adding that recent market action suggests this argument is winning.
Doshi said this dynamic helps explain why gold can remain resilient even as long-term yields stay elevated. A modest decline in real yields would provide a traditional tailwind for the precious metal; however, even sharply higher yields could support gold if the move reflects deteriorating confidence in sovereign debt and is accompanied by a weaker U.S. dollar, he said.
“I think right now it’s a little bit of a confidence game,” he said. “Gold has no creditor, it is a scarce natural resource, and it has history behind it.”
It is against this backdrop that Doshi sees an eventual path to $10,000 gold.
He cautioned that such a move would not happen in a straight line and would depend on how broader financial markets respond to growing fiscal pressures. A recession, for example, could simultaneously boost gold and restore demand for government bonds, temporarily relieving some of the pressure that has fueled the debasement trade.
Nevertheless, Doshi said the long-term direction remains clear.
“I do think $10,000 is a question of when, not if,” he said.
Importantly, gold would not require an extreme allocation shift among global investors to reach that level.
Doshi noted that gold funds still represent less than 1% of global exchange-traded fund and mutual fund assets. If gold were to eventually become a 3% strategic allocation, roughly tripling its current share, he said that shift alone could generate enough investment demand to drive prices toward $10,000 an ounce.
Meanwhile, he said that there are already indications that gold’s investor base is broadening.
Doshi said Chinese investors were important buyers during the recent correction and helped establish strong support around $4,000 even as Western investment participation remained relatively limited. With gold subsequently rebounding toward $4,700, he said Western investors could be more willing to buy the next technical correction after seeing the strength of underlying demand.
At the same time, physical demand remains resilient. Emerging-market central banks continued to buy aggressively during the second quarter, while Chinese retail investors accumulated record amounts of gold heading into the summer.
For Doshi, those flows highlight an important distinction between the tactical forces driving gold from month to month and the structural forces supporting its longer-term role as a global monetary asset.
Geopolitical fragmentation, rising military spending, growing fiscal deficits and concerns over sovereign debt sustainability have not disappeared. In some cases, he said, geopolitical turmoil has only intensified those pressures.
“The structural was always there,” Doshi said. “Currently, the structural has become combined with the more tactical.”
