Rock bottom interest rates, widespread market uncertainty and increasingly desperate measures taken by the US Federal Reserve could push gold prices towards US$1,900/oz and beyond, Edison’s Charlie Gibson said in a report on Friday.
“With the total US monetary base now at US$5.1 trillion – and given the close historical correlation between the two – the gold price could very reasonably be expected to rise to US$1,892/oz and potentially as high as US$3,000/oz,” said Gibson.
While a rise in gold prices has driven a strong performance by large cap gold miners, the junior sector has so far lagged behind. Gibson said this was perhaps because junior explorers were “more dependent on perceived financing conditions in global financial markets than the unique characteristics of the projects they are trying to finance”.
Across the board, however, Gibson noted that gold mining equities “of all types have almost never been cheaper relative to the price of gold in the period 2002 to the present”.
Monday’s reports from Beijing suggest fears of a second wave of COVID-19 are well founded. Gibson said a protracted Coronavirus scenario would great opportunity for existing gold producers to provide financing to the junior sector “and potentially usher in an era of wholesale consolidation within the industry”.