Bernard Dahdah, the senior commodities analyst at Natixis, believes that gold will reach $1,950 an ounce by the second quarter of 2021.
Kitco reported that Dahdah’s comments came at a time when the “gold market holds near their highest level since 2011 as the price pushed above $1,800 an ounce.”
Dahdah believes that the Federal Reserve’s yield curve control, combined with inflation, would make real interest rates go negative. Such a process would make gold an attractive alternative as a “safe-haven asset.”
“However, we do point out that inflation is unlikely to be considerably elevated (reaching a high of 2.2% in Q2 2020) hence putting a break at how low real yields can get,” he commented.
In spite of global central banks injecting massive amounts of liquidity into financial markets as a way to stabilize the global economy, Dahdah believes that the next step for central banks to take is yield curve control.
“Without yield curve control, the danger is that forward-looking financial markets, prematurely discount a recovery thus leading to a risk-on market swing, lifting borrowing rates for the Treasury and private firms,” he added.
He observed that due to the economic impact of the Wuhan virus pandemic, the global economy will remain fragile for longer than expected.
“In our view, we do not expect to see inflation dramatically rise on the back of today’s important monetary and fiscal policies, as such we do not expect to see a drastic drop in real yields even if a yield curve control is introduced. The link between money creation and inflation in today’s economies is broken,” remarked Dahdah.
Although Natlixis holds bullish views on gold for the next year or so, Dahdah believes that the precious metal’s performance could start to plummet by the second half of 2021.
“Rising yields during the second half of 2021 should drive gold prices lower, especially if the pandemic is finally brought under control,” he stated.
Given the level of economic uncertainty, Federal Reserve activity, and government actions, it would probably behoove many Americans to move into safe assets such as gold to protect their wealth.
It has a proven track record as a safe-haven asset for thousands of years and will likely serve as one in the present and near future due to activist central banking policies.