US gold prices have the potential to rise as high as $US3000 ($4166) per ounce, according to Edison Group analyst Charles Gibson.
With the total United States monetary base now sitting at $US5.1 trillion and interest rates being cut to zero since the COVID-19 crisis began, the Federal Reserve has been “bond-buying with a vengeance”.
Gibson outlined the outlook for the precious metal in Edison’s A Golden Future: The Outlook for Gold and Gold Equities report, following the patterns of gold bullion since the start of the outbreak.
“Gold, with its safe haven and monetary status has been an obvious beneficiary of the current uncertain environment,” Gibson said.
“That seems unlikely to change for long as the coronavirus remains a largely unknown quantity.”
The total United States monetary base has expanded 58 per cent in eight months while interest rates remain solidly negative, creating potential for material volatility.
If the Federal balance sheet stabilises or continues to increase, Gibson predicts that the gold price to rise to at least $US1892 per ounce.
“The share prices of existing producers will take immediate advantage of this situation,” Gibson said in the report.
“Companies with higher levels of financial and operational gearing should benefit the most in percentage terms, while the share prices of junior exploration companies will outperform slowly over the long term.
“This scenario will also create the opportunity for existing producers to provide financing to the junior sector and potentially usher in an era of wholesale consolidation within the industry.”
Gibson believes that if the coronavirus crisis concludes rapidly and Federal Reserve is able to quickly contract its asset base and return to a policy of normalising interest rates, gold prices should stabilise at below $US1700 per ounce.
If the coronavirus pandemic proves protracted and the balance sheet stabilises or continues to increase, Gibson expects prices to rise to at least $US1892 per ounce or higher, setting the motion for producers to take advantage of the prices, especially if oil prices remain low.