As inflation fears abate somewhat, the gold price could surge near $2,000, according to one Goldman Sachs analyst.
In an interview with Yahoo! Finance, Goldman Sachs analyst Mikhail Sprogis said gold was now pricing in a “‘Goldilocks scenario’ of moderate inflation and continued global recovery,” and was therefore trading at a large discount to the current real rate.
Gold prices are 11% lower than in July 2020, when they hit a record high of $2,036/oz.
“In our base case, [where] the global recovery continues uninterrupted, and inflation remains subdued, we expect this discount to persist and see just modest upside to gold, driven by only a small increase in real rates and a continued improvement in EM wealth,” he added.
Sprogis went on to point out that the surprisingly hawkish turn from the Fed has sharply countermanded the inflation fear factor: “this not only reversed the inflation trade but also removed the market’s pricing of inflation tail risks.”
He added that if inflation does begin to kick in, the upside for gold could be quite substantial, given its current undervaluation and low allocation. "We think that gold may be a good strategic purchase here for portfolio managers looking to hedge against tail risks of macro volatility,” he said.
Gold Price Could Boost Miners
The gold price is up 2% on the week, trending in the direction that Sprogis forecasts.
Higher prices bode well for miners, who have had a rough month but continue to claim access to tremendous long-term upside.
Sprott CEO Pete Grosskopf recently told MarketWatch that “the fundamentals for gold have never been better: record debt and deficit levels, financial markets that are priced for perfection and the emergence of inflation in response…after a healthy correction due to confidence in the recovery, gold will now anticipate investor concerns over overall debt and deficit levels.”
The mining company Barrick Gold (GOLD), one of the principal holdings of the Sprott Gold Miners ETF (SGDM ), is up 1.5% and outperforming the S&P 500 Index.
Meanwhile, SGDM’s largest holding of Newmont Corp (NEM) is up 4.71% on the year.
In an interview with Asset TV, Gosskopf said that “gold companies haven’t been cheaper than this in a long time versus the gold price.”
Another ETF that can take advantage of gold’s strong long-term fundamentals and current bargain price is the Sprott Junior Gold Miners ETF (SGDJ ), which tracks junior gold miners.
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