Gold price to $2,070 by 2020, Edison Investment Research predicts
Louisiana (Nov 24) Bullish forecast counts on real interest rates remaining negative.
Edison Investment Research is out with a new report on gold, and the longer-term prognosis is bullish, certainly if the Federal Reserve keeps interest rates low for the foreseeable future, as its top officials have repeatedly vowed.
Right now the price is struggling because "the market is narrowly focused on the possibility of the Federal Reserve's tapering of QE3 and the assumption that this is inherently bad for the gold price," Edison analysts write.
"This report, by contrast, argues that the price of gold is already at a discount to that implied, given the implicit relationship between the two, by the expansion of the US monetary base and that, far from tapering causing the gold price to fall, it will merely cause it to rise less quickly. Currently, Edison calculates a fair value of gold in excess of US$2,000/oz, although it recognises the likelihood of a period of drag while western economies (and the United States in particular) unwind their debt burdens. Key to the prospects for gold will be the interplay between interest rates and inflation. Given the extent of quantitative easing to date, Edison calculates a long-term US dollar inflation rate of 10.7% (discounting a future, sharp reduction in the monetary base), under which circumstances it forecasts the price of gold rising to US$1,642/oz in 2015 and US$2,070/oz by 2020 if real interest rates remain negative. By contrast, a restoration of positive real interest rates would depress the price of gold, and inflation, such that Edison calculates a price of US$1,604 in 2015 and US$1,804/oz in 2020."
