ABN Amro Bank predicts further increases for gold

Traditionally, gold is considered an active refuge. That has not stopped the metal from rising to a peak close at nine-year highs. 

The efforts of world central banks to reduce interest rates have fallen into negative territory in the United States. They are quite harmful to many parts of the world. According to William Watts, a senior market writer at Marketwatch, investors who own gold are not lacking on the return they would earn by holding bonds in more ordinary circumstances.

As real returns become negative, the opportunity costs of holding non-performing assets essentially fade. Notably, it happens when viewed through the historical lens of fiat currencies and their purchasing power. This was according to Jeff deGraaf, president of Renaissance Macro Research, last week.

He said that this provides a continuous tailwind for gold, referring to the price of gold invested against the United States Treasury’s real yield curve.

Meanwhile, gold continues to rise by 0.8% during the second week of July. It also rose more than 18% from January to the current date.

Gold at $2,000?

Georgette Boele, a precious metals strategist at ABN Amro bank, said that central bank policy is a strong driver of higher gold prices. Official rates are not only close to zero in a large number of countries, but will probably not rise above the bank’s forecast horizon.

Most central banks have announced quantitative easing. The Federal Reserve embarked on unlimited quantitative easing. Besides, the Bank of Japan and the European Central Bank also implemented significant programs. It sounds like music to the ears of gold lovers as money floods the market, and coins start to decline, Boele said.

According to the World Gold Council, in June, gold-backed ETFs posted their seventh consecutive month of positive global flows, adding 104 metric tons, equivalent to $5.6 billion. During the first half of the year, global net inflows reached $39.5 billion, beating the previous 2016 annual inflow record.

Meanwhile, investors worry about long-term inflation potential. This will become visible through inflation expectations and negative real returns to the United States. The increase in the government budget deficit as a result of Government fiscal stimulus efforts has not hurt gold either.

Boele stated that the psychological resistance of $1,800 per ounce level had been overcome. On top of that, the critical level of $2,000 an ounce is within reach.

ABN Amro raised its year-end gold forecast to $1,900 an ounce from a previous target of $1,700. It now sees the yellow metal at $2,000 for the first time against an earlier forecast of $1,800.

Boele ended his remarks by noting that a considerable correction in gold prices is likely to happen in an unsafe environment. However, this correction is expected to be short-lived.