Gold to move above $2,000 over the next six months – TDS

Gold (XAU/USD) has been able to stabilize and move away from the $1,800 level but the yellow metal remains under pressure as the pending appointment of a pro-stimulus Treasury Secretary and emerging clarity on the US political scene had the effect of materially steepening the yield curve. However, as economists at TD Securities expect the Fed to ease and while fiscal stimulus and a vaccine driven economic normalization should boost inflationary expectations, gold maintains a positive outlook with a surge above $2,000 still on the cards.

See:

• Gold to end the uptrend on a break of critical $1,800 support – ABN Amro
• Gold to rally towards $2300 in 2021 – CIBC

Key quotes

“The downward adjustment may well bring the yellow metal below technical support at around $1,795/oz, as the current rate and macro expectations drive physical metal to London to make available for lending and as ETF material from dispositions pushes out GOFO rates higher.”

“Once the metal from recent dispositions gets absorbed, the big picture is still very conducive to $2,000+ gold. Even if the planned vaccination programs go without a hitch, it will take well into H2-2021 before herd immunity is achieved and the economy normalizes.

“The second wave of covid infections will ravage the economy, assuring that US and indeed global economic activity is below potential for a prolonged period. This implies that the Fed will be forced to continue very simulative policies for a prolonged period. As other economies around the world also start to do better in absolute terms and relative to the US, USD will likely trend lower should trend lower. A weaker USD has traditionally been gold positive.”

“Based on the proposition that Janet Yellen will be Treasury Secretary of the US, it is likely that the Biden Administration policies should be quite skewed to robust fiscal stimulus. Janet Yellen's stated economic policy goals ranging from financial help for municipalities, states, business and individuals will require money, which will likely be borrowed. This should continue to maintain currency debasement concerns, one of the key reasons investors buy gold as protection.”

“Various income and social support programs may increase inflationary expectations, and with the Fed now comfortable allowing its policy rates to move above the stated 2% target, gold should benefit once economic normalization takes root.”