Gold price outlook: Gold peak projected despite price dip

Gold prices are slightly down today, trading under $1778 per ounce (-0.34%) after having gained 0.58% on Monday ending at $1783.91.

Despite this pause, gold prices remain very closed to their annual record, and analysts believe they won’t run out of steam. Within the next few months, the precious metal is expected to break its $1921 historical record reached in September 2011.

Having gained almost 6% in a month, the precious metal hit an intraday peak at $1789.15 an ounce last week. This is a level not seen since October 2012.

Where next for gold price?

Lately, Citi analysts increased their three-month gold price forecast increased to $1825 per ounce, against a $1715 prediction for the second half of 2020 at the end of May.

The bank is expecting gold price to break above $2000 in 2021, breaking its $1921 all-time high.

Goldman Sachs projections are pretty similar, betting the precious metal will reach $2000 an ounce in the medium term.

Earlier this month, Dan Popescu, investment research consultant and gold and silver analyst, said to IG TV he believes that in the next five years gold price could break above $5000.

Discover on IG TV why you should keep at least 10% of your portfolio in gold as a hedge

Gold price technical analysis : the uptrend remains intact

In a recent analysis, Chris Beauchamp, chief market analyst at IG said, ‘the gold price is drifting sideways once again, but the overall uptrend remains firmly intact. A move below $1750 would likely indicate some near-term weakness, but for now the most likely course from here is a push higher.’

According to Arnaud du Plessis, thematic equity portfolio manager at CPR Asset Management, the next targets remain at $1790/1803/oz (October 2012, February 2012 and November 2011 peaks) then $1921/oz (record peak reached in September 2011).

‘These targets will be retained as long as the $1645/1670/oz market support zone stays in place. Below this level, the main support zones are at $1550/1560/oz and $1440/$1460/oz (medium term) and at $1365/$1385/oz (long term)’, he explains in a note published a few days ago.

Gold will continue to rise amid low US real interest rates

If the overwhelming majority of commodities analysts are bullish on gold, it is not by chance. The combination of a set of elements are undoubtedly conductive to supporting the precious metal.

‘The environment is still looking very good for gold and gold miners’, says Arnaud du Plessis. ‘Central banks are staying on full alert as the resurgence of Covid-19 in some parts of the world is creating fears of a second wave. This unique situation in generating growing interest in the barbarous relic, in the form of both the physical metal and gold-mining stocks able to offer investors potentially very significant performance leverage’, considers the portfolio manager.

On top of this coronavirus related risk-off sentiment, gold is gaining some tracks on signs of weakness in the US currency. ‘In two thirds of cases, gold and US dollar prices are inversely correlated’ stresses Arnaud du Plessis. But US real interest rates (nominal interest rates minus inflation), which are currently negatives, ‘are actually the biggest source of support’, he explains.

Finally, ‘the combination of a fall in US-10 year interest rates (0,66%) and a rise in inflation expectations (the US 10-year breakeven inflation rate is at 1.45%) has created a perfect storm of gold, as shown by the high correlation between the trend in gold prices and inflation-linked bond.’

How to trade commodities with IG

Looking to trade the gold and other commodities? Open a live or demo account with IG and buy (long) or sell (short) shares using derivatives like CFDs and spread bets in a few easy steps:

1. Create an IG trading account or log in to your existing account
2. Enter ‘Spot Gold’ in the search bar and select it
3. Choose your position size
4. Click on ‘buy’ or ‘sell’ in the deal ticket
5. Confirm the trade