Gold is still cheap

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What Drives Gold Prices?

 

We previously targeted gold to hit US$2,500/oz. The target is getting closer. Many investors are excited because they associate falling real interest rates with higher gold prices. Not only does the statistical evidence point to liquidity rather than real interest rates as the causal factor, but, with nominal policy rates already effectively at the zero-lower bound, much higher inflation is anyway needed to justify even today’s gold price. Instead we focus on the effect of a liquidity trend on gold, with cyclical swings explained by investors’ risk appetite, Fed QE policy, and accelerations and decelerations in the rate of inflation. This model suggests gold is currently ‘fair-value’ at US$2,100/oz. and could even test US$3,000/oz. by late-2021.

 

 

 

See our latest published research, Global View - What Drives Gold Prices? - August - 2020

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