Barron's: Gold Just Broke $2000. Here's How It Gets to $2500

August 04, 2020

Article by Ben Levisohn in Barron's

Gold closed above $2,000 an ounce for the first time on record on Tuesday. Can it keep heading higher?

The most-active gold futures contract gained $34.70, or 1.7%, to $2,021, the highest close on record. Gold’s performance, however, looks positively muted next to silver, which has gained 5.9% to $25.86.

These are astonishing moves, and rather than a sign of fear, as gold’s rise is sometimes taken to be, they’re more a sign that investors are worried about a possible uptick in inflation. For good reason too as the Federal Reserve continues to buy massive amounts of bonds and the government spends, spends, spends.

“Gold has settled at its highest levels ever, and the message is clear: gold positioning indicates that investors’ attitudes toward the metal have changed amid the public health crisis, economic turbulence, and extremely easy monetary policy actions,” writes RBC strategist Christopher Louney. “Uncertainty is high amid the multiple crises, and political as well as geopolitical tensions are proliferating. As such, gold continues to step into its role as a ‘perceived safe haven’ quite well.”

So how high can gold prices go? We like math, when it’s available, and BofA Securities metals strategist Michael Widmer provides it. He notes that a combination of the U.S. Dollar Index at 90—its currently at $93.40—and real interest rates at minus 2%, gold would be worth $2500 an ounce.

To read this article in Barron's in its entirety, click here.

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