Gold topped $2,000 an once for the first time this week as a combination of the weakening dollar and a drop in real yields sent investors looking for alternative forms of protection.
Bank of America Merrill Lynch said it now expected gold to hit $3,000 by early 2022, alongside significant gains in other precious and industrial metals.
Analyst Michael Widmer wrote: ‘The simultaneous gains of base and precious metals has caused concerns among market participants over how fundamentally supported the rally is: gold is usually perceived as an anti-cyclical commodity, while copper tends to be viewed as linked to the strength of the business cycle.
‘While quotations of the various mined raw materials can indeed diverge at stages, prices have trended into the same direction more than half of the time since 1990.
‘The current macro-economic backdrop of loose monetary and loose fiscal policy reinforces that dynamic, so we believe the recent rallies can be justified. We expect gold to hit $3,000/oz in the coming 18 months. Some of the investor demand from investors for hard assets should also feed through into silver.’
Citigroup was more circumspect, saying it was targeting $2,300 by mid-2021, but pointing out that major emerging market central bank buyers, such as Russia and China, had paused their purchasing.
The gold spot price has climbed around 33% this year as interest rates have been cut to new emergency lows. Real yields on many major sovereigns have even headed into negative territory.
That was given additional impetus as the head of the Federal Reserve Bank of San Francisco said the US economy would need more support than earlier believed, further undercutting nominal yields.
Adjusted for inflation, the gold price remains well below the 1979 peak which would be close to the equivalent of $2,500. That was hit as the Soviet Union invaded Afghanistan.
More than $53bn has flowed into gold portfolios since the beginning of the year, fund data analyst EPFR noted last week. Exchange-traded fund investment has been a particular driver, adding $43bn in assets.