Gold price can still get to $2,000 as real rates remain negative
By Neils Christensen of kitco.com
Rising bond yields have taken a significant bite out of the gold market this year, but investors shouldn’t fear increasing nominal yields as real interest rates will remain negative for the foreseeable future, according to Rohit Savant, CPM Group’s vice president of research.
In his 2021 gold outlook during the Prospectors & Developers Association of Canada (PDAC) 2021 virtual conference, Savant said that he remains optimistic on gold as the price is supported by long-term fundamentals, including rising debt levels and extremely accommodative monetary policy.
The comments come as gold prices trade firmly below $1,700 an ounce as yields on 10-year Treasury Notes trade near their highest level in a year above 1.5%.
Although nominal yields have risen sharply from their August lows, Savant noted that yields are still extremely low compared to historical standards. He added that nominal yields shouldn’t be a significant concern for gold investors.
“Real yields are firmly in negative territory, and we expect them to remain there,” he said.
In his presentation, Savant said that CPM Group expects gold prices to push back to $1,995 an ounce this year, a 5% gain from last year’s closing price.
Along with will negative real interest rates, Savant said that gold also looks attractive as a safe-haven asset in an environment of overvalued equity markets.
“Equities look a little top-heavy, and this could lead to more volatility. That would be good for gold,” he said.
Investment demand is expected to play a critical role in the gold market in 2021; however, it might not significantly impact prices, he added.
Savant explained that although CPM Group sees investor demand reaching 40 million ounces, topping last year’s record levels, investors won’t be chasing the market and instead will look to invest in dips.
“Investor demand will provide strong underlying support for gold, but it will have limited upside on the price,” he said.
For investors looking for more gains in the precious metals market, Savant said they would do better looking at silver and platinum. CPM group sees silver prices pushing well above $30 an ounce, rallying 30% from last year’s closing price.
“Silver market still doesn’t reflect the bullish environment we see,” he said.
Savant said that an improving global economy is expected to boost silver’s industrial demand.