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RBC: Gold Worth $1,300/Oz Long-Term

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RBC increased its forecast for gold prices for 2016 to $1,250/oz and from 2017 onwards to $1,300/oz and maintained a favorable long-term stance on the commodity.

Gold for June delivery rose 1.09 percent to $1,257.30.

"Regression analysis suggests a -0.5% real rate would imply a $1,380/oz gold price and a -1.0% real rate $1,546/oz. Currently, we would calculate this real rate proxy as -34bp, which implies a gold price of $1,326/oz," analyst Tyler Broda wrote in a note.

Broda continued, "The recent dovish turn by the FOMC following significant global volatility in January and February has left the path for rate hikes in 2016 much more uncertain. As US inflation re-emerges, after a long period of dormancy, the potential for even moderate inflation to push real rates lower could have a significant positive impact on gold investment rates."

"The potential for inflation rates to move upwards and match US Treasury yields, which continue to be held down in the short-term, could create a 1970s-esque phase in real rates, in which our analysis suggests could move gold prices higher from here," the analyst highlighted.

However, Broda noted the yellow metal is "unlikely to trace out a straight line path with current volatility. We see near-term positioning as unfavorable (following Q1) and global deflationary pressures, specifically from China, continue to weigh on world markets."

"But the falling opportunity cost of owning gold in a falling real rate environment, should it develop again, could provide the potential for higher rates of gold investment and higher gold prices over the long-term," Broda added.

Latest Ratings for GLD

DateFirmActionFromTo
Apr 2013Oracle Investment ResearchInitiates Coverage onStrong Buy
Apr 2013Oracle Investment ResearchInitiates Coverage onStrong Buy

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Posted-In: Gold RBC Capital Markets Tyler BrodaAnalyst Color Commodities Markets Analyst Ratings