Gold at $2,000 before the end of the year? “It’s becoming more and more likely.”
Gold’s recent rally has legs and there is also reason to be positive on precious metal-related stocks.
They believe it Claudius Wewellcurrency strategist for J. Safra Sarasin AM sustainabley James Lukecommodity fund manager Schroders.
The first considers that the latest rises in the precious metal still have room. and advances a number of reasons to justify this approach. First, he thinks that the US dollar will continue to weakenand expects real yields to continue to moderate, which is positive for gold. Furthermore, he believes that the political situation “is conducive to greater structural demand for gold”.. Finally, it provides that The recovery of activity in China will stimulate purchases of physical gold..
“We think it is increasingly likely to break above $2,000 an ounce before the end of the year. said Claudio Wewel. In this regard, it should be noted that gold has had good results so far this year.from around $1,800 an ounce to $1,900 in just four weeks.
J. Safra Sarasin Sustainable AM looks at the “structural” reasons for its positive view on gold. He points to central bank purchases, which increased significantly last year. Especially, Emerging countries seem to have seized the opportunity to increase their reserves. in a context of falling prices in the second half of 2022.
Turkey tops the list of gold buyersadding more than 120 tons to its reserves. However, the central banks of Egypt, Uzbekistan, Iraq, India and China. increased their holdings significantly.
“Given the freezing of Russian dollar reserves at the start of the war in Ukraine, we consider these institutional purchases to be part of…”. a broader effort to replace dollar reserves with gold.in a way to reduce dependence on US political goodwill.. This process should continue, which should provide a floor for gold prices,” says Wewel.
The manager also points out that physical purchases make up the majority of total gold demand. “Given the importance of Chinese and Indian buyers, Demand for jewelry is expected to pick up again, along with investment in bullion and coins. when Chinese activity picks up and consumption returns to pre-crisis levels,” he insists.
GOLD-LINKED EQUITIES ARE DOING WELL
Schroders is not only positive on gold, but also on gold-related stocks, and they give two reasons for this.
“Besides the usual strong performance during recessions, we highlight two other reasons for taking a positive stance on gold and related stocks. First of all, the environment general operating environment for gold stocks seems to improve in 2023“, says James Luke. He explains that last year, profit margins for gold producers were squeezed by rising costs. “Margins could widen again this year with higher gold prices. On the cost side, some sectors are already seeing declines,” he notes.
Second, the actions of gold producers are trading low over the long term and investors remain heavily underpositioned.