Chris Wood hikes gold price target, sees yellow metal at $5,500/ounce

Christopher Wood, world wide head (fairness strategy) at Jefferies has grow to be even more bullish on gold and now expects the yellow metallic to hit $five,500 per ounce (oz) likely forward – a rise of about one hundred eighty per cent from the existing degrees, and up 31 per cent from his forecast of $four,two hundred/oz made previously in 2020.

The previously price forecast, Wood wrote in his weekly notice to investors GREED & concern, was based mostly on adjusting the gold price for US per capita disposable earnings that was invested in gold when the price of the yellow metallic hit its peak of $850/oz all through the past secular bull current market in January 1980.

“Gold price was then equal to nine.nine per cent of US disposable earnings per capita which was $8,547. The gold price is now $one,952, or three.6 per cent of per capita US disposable earnings of $fifty three,747. To reach nine.nine per cent of US disposable earnings per capita suggests gold really should rise to $five,345. This suggests that a price of $five,500 is now a acceptable price concentrate on at the peak of the existing secular bull current market,” he argues.

Other leading brokerages also share Wood’s watch. A new BofA Securities Fund Supervisor Survey (FMS) for August, for instance, revealed likely lengthy on gold was the 2nd-most crowded trade among the world wide fund professionals, with 23 per cent of all those surveyed bullish on the valuable metallic. Individuals at Credit rating Suisse Prosperity Management, far too, believe gold is probably to pattern up about the lengthy run, who argue that a weaker US dollar and decrease true yields are the primary motorists for the ongoing power in the gold.

“Covid-19-linked worries are even now current as the pandemic keeps accelerating in numerous sections of the globe, which keeps the diversification need large for gold. This is seen in strong ETF inflows, which have yet again achieved a new record of 109 million ounces, showing no signs of abating. With the prospect of a weaker US dollar and a minimal-interest rate setting, our Residence Perspective continues to be good on gold as an asset class with a three-thirty day period and 12-thirty day period concentrate on of $2,000 and $2,one hundred fifty per ounce, respectively,” wrote Jitendra Gohil, head of India fairness investigation at Credit rating Suisse Prosperity Management in a co-authored notice with Premal Kamdar.

That said, the vital chance to gold rates, in accordance to Wood, is the even more steepening of the produce curve, which really should result in a near-phrase correction. “That is, of program, except if the current market is convinced that the US Fed is likely to stay dovish in terms of softening the inflation concentrate on at the following US Fed meeting and committing, quicker or later, to some version of produce curve control. For this raises the possibility that gold simply appears to be by means of this kind of produce curve steepening,” he said.

From an all-time large degree of $2070 hit in August 2020, gold rates have by now tumbled virtually 6 per cent. Having said that, about the previous calendar year, gold is even now ruling virtually 30 per cent increased at close to $1948/oz. On a calendar year-to-day (YTD) basis, the rise has been similarly spectacular at close to 27 per cent.

One more vital problem, in accordance to Wood, is the continuing weak physical need for gold in rising marketplaces, specifically in India. Client gold need in India, in accordance to studies, declined by 70 per cent YoY to 64 tonnes in the June 2020 quarter (Q2-20) and was down 55 per cent YoY to 166 tonnes in the very first 50 % of the calendar calendar year 2020 (H1-20). Client gold need in China and the Middle East declined by 48 per cent YoY and 34 per cent YoY respectively in H1-20.