It is quite optimistic for anyone to predict that gold will surge to $3,000. However, there are key reasons to take the price of gold seriously. The most important reason is that gold needs to surge towards $3K per ounce before it is considered to have reached a genuine all-time high.
Another reason is that the bank forecasting the $3,000 price knows a lot about gold than most of its rivals due to its extensive exposure to the gold-rich Canadian mining sector. RBC Capital Markets is an arm of the Royal Bank of Canada.
On August 3, this bank lifted its high-case for gold to settle at $3,060 per ounce by the first quarter of 2021. It set the price at that level due to the increasing demand for the metal that doubles up as a reserve currency.
A major driver to this forecast is a considerable change in the attitude of investors towards gold due to the COVID-19 public health crisis. Furthermore, economic turbulence and extremely easy monetary policy actions are affecting the price of the precious metal. RBC said:
“Gold continues to step into its role as a perceived safe haven quite well. On top of that, with gold prices rocketing to all-time highs, gold’s outright price gains have made it a star assets of 2020, arguably appearing more popular than ever.”
Is It A Record Price? Not Quite
The comments that came from RBC will be an interesting projection for the many gold enthusiasts. Nevertheless, the ultimate arbiter of gold matters may not agree due to the important role that is played by inflation in monetary assets.
A research organization controlled by the gold mining and processing industry, the World Gold Council (WGC), believes that gold in the current dollar rate needs to surge to almost $2,800 per ounce to set a new record.
After it is adjusted for inflation, the gold price today is almost $200 per ounce below its 2011 official peak that is set on the London Bullion Market of $1895 per ounce. That price is also way below the January 21, 1980 record high of $843/oz. It translates to almost $2,800 in the current money based on the World Gold Council’s investment update last week.
It is the WGC calculation that gold requires to continue with its surge to reach a new high in reality after inflation. That adjustment might add a touch of credibility to RBC’s forecast.
The extensive break down of RBC’s gold tips begin with a low price scenario of about $1,739 per ounce early in 2021. However, the outcome has been assigned a mere 10% probability of happening.
The base case that may have a 50% probability of happening is for gold to rise easily over the $2,000 mark in the first quarter of next year before easing to about $1,801 per ounce by the fourth quarter of next year.
The high-price scenario to which RBC has assigned 40% probability is that the precious metal will cross the $3,000 mark as economic turbulence: “proliferates into an even deeper crisis”, arguably to unexpected levels.
RBC went on record to describe gold as being a “freight train” on a winning streak. This winning streak is not seen in years that had shifted the goalposts as far as its previous gold price forecasts.
However, there is a warning for the investors who are just arriving at the gold boom since the physical demand for gold has collapsed. Therefore, almost everything that is happening currently is a financial market event that can easily fade as quickly as it arrived. RBC said:
“According to the WGC gold demand fell by 11% in the June quarter and 6% in the first half of the year. The investor certainly carried the day with record inflows into exchange-traded funds for example, but fewer central banks added gold and there’s no way around it, consumer demand is extremely weak.”