Gold has been under pressure in recent weeks, but one bank is making the case that the precious metal is actually extremely under-priced.
Deutsche Bank analysts Michael Hsueh and Grant Sporre wrote in a note to clients Friday that if measured as a currency, gold’s worth is close to $1,700 per ounce. This is a steep 29% climb from gold’s current price, which has traded near a five-week low this week. The most active gold futures contract fell 0.5% on Tuesday to $1,321 an ounce.
Looking at the 300% expansion of central bank balance sheets and the 200% rise in above-ground gold stocks since 2005, Deutsche Bank analysts argue that to keep the two equivalent in value, gold should be trading near $1,700.
Gold prices tend to be influenced by growth in central bank balance sheets, but has lagged behind since 2013, according to the research report. This could provide some support to gold going forward.
‘As long as the central banks’ balance sheets continue to expand, the gold price should maintain some momentum,” the note said.
Other bullish analysts calls on gold see the precious metal trading near $1,400 or even $1,500 an ounce by the end of the year, if the safe haven asset continues to benefit from economic uncertainty, negative interest rates and concerns over the U.S. presidential election.
Still, Mr. Hsueh and Mr. Sporre said they are not predicting a rise to $1,700 in the near term, and given gold’s recent outperformance, the precious metal is likely to see a period of slower price appreciation.
Overall, gold prices should continue to take cues from Federal Reserve officials and rate hike expectations. they said. On Friday, Fed Chairwoman Janet Yellen and Vice Chair Stanley Fischer reinforced the potential for an interest rate increase as early as September, driving gold prices lower.
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