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Gold prices cleared an important psychological resistance at $1,800 per ounce yesterday and the stars are aligned for gold prices to continue to rise according to strategists at ABN Amro who expects gold to trade at $1,900 per ounce by year-end and at $2,000 per ounce by end-2021. 

Key quotes

“Firstly, central bank policy is a strong driver behind higher gold prices. Not only are official rates close to zero in a large number of countries, they will unlikely go up in our forecast horizon. Moreover, most central banks have announced quantitative easing.”

“Secondly, in a number of countries there are negative rates (official and/or government bond rates). Gold is not paying any interest rates. So negative rates are another major support to gold prices especially versus the euro.” 

“Thirdly, the US may not have negative official rates or government bond yields, but nominal rates corrected for inflation expectations (real rates) are in negative territory. As long as there are expectations that the Fed would move to a form of yield curve control, the upside in US Treasury yields is limited. So, if investors are concerned about inflation in the longer run this will be visible in inflation expectations and negative US real yields. Our US economist expects relatively stable US Treasury yields and no pick-up in inflation, because of the negative effect of the pandemic on the economy. So, we think that this driver should have less impact going forward.” 

“Fourthly, governments have embarked on large-scale fiscal stimulus to support the economy. As a result, fiscal deficits in a large number of countries have risen substantially, even to double digit numbers. This development has made some investors nervous, especially in combination with the substantial amount of monetary policy stimulus.” 

“Fifthly, and finally, the technical outlook is positive. Investors saw every dip in gold prices as a buying opportunity. Now the psychological resistance of $1,800 per ounce has been surpassed. It seems that investors will only be satisfied if the former peak in gold prices at $1,931 per ounce is reached and taken out. Above that the important psychological level of $2,000 per ounce is within reach.”

“Our new year-end forecast is $1,900 per ounce (was 1,700) and new forecast for end of 2021 is $2,000 per ounce (was 1,800).”