Managers forecast surging gold price to extend throughout the year

The price of gold suffered a $100 drop in one day earlier this month amid confidence in the economic recovery, but money managers still expect the price of the precious metal to continue to rise this year.

“Under a status-quo scenario, the idea being that the world doesn’t change materially over the next 12 months … our forecast is taking us up to around $2,640,” said Mobeen Tahir, London-based associate director of research at WisdomTree U.K. Ltd.

As Pensions & Investments went to press, gold was trading at around $1,938 per ounce.

The alternative scenario, with a vaccine developed in the next few months, a fairly strong economic recovery and a pickup in inflation, could see gold at around $2,200 per ounce, he said.

“One of the main drivers in that scenario is going to be inflation. While we might see that safe-haven demand pull back a little because uncertainty has eased … investors will turn toward gold to hedge themselves” against inflation instead, keeping interest in gold alive, Mr. Tahir added.

But the $100 drop on Aug. 11 to below $2,000 has also served as a reminder to investors and money managers that gold is a volatile asset class. The 5% drop in price per ounce represented the worst fall in one day in seven years.

“What we saw (that day) was a bit of market excitement on the idea that maybe we are getting closer to a vaccine, economic data from Germany maybe was better than expected. (It was) a bit of exuberance in markets. Treasuries and gold pulled back a little, but nothing fundamentally has changed — which is why you see gold picking up a bit in the last couple of days,” WisdomTree’s Mr. Tahir said.

The gold price was due for a correction, added Joe Foster, New York-based portfolio manager and strategist for the gold and precious metals strategy at VanEck. “It broke above $1,800 in July, there was a strong move to over $2,000 per ounce, and it topped out around $2,065 on (the) Aug. 7 high. So the market was due for a pullback and we had (one),” he said.

There will be further periods when the precious metal gets overbought and a correction occurs, Mr. Foster said. One potential risk is that the huge inflows to gold exchange-traded products over recent months may quickly reverse.

However, VanEck executives think gold could break the $3,000 per ounce mark, even hitting $3,400 in the current cycle.

Gold flows set a new monthly record in July, according to BlackRock Inc.’s global ETP flows report. It said net inflows of $9.3 billion in July pipped the previous record of $9.2 billion, set in April. Inflows were split across regions, which indicates global demand, although flows were led by funds listed in the U.S., the report said.

“We don’t have numbers that we trust about retail volume in gold and gold-related financial instruments,” said Marco Bonaviri, Geneva-based senior portfolio manager at banking group REYL & Cie Ltd. “However, it is clear that gold is attracting a lot of inflows, from all types of investors, retail included. A case for gold being ‘hot money’ currently is understandable,” he said.

At this stage, the firm’s view is that retail interest in gold “could fuel short-term volatility spikes in gold prices, but should not derail the structural bull market, which is supported by strong fundamentals,” Mr. Bonaviri said.

Pensions & Investments – Sophie Baker – August 24, 2020

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