However, with global government debt levels at all-time highs, central banks will only carefully tighten the screw to ensure debt sustainability and financial market stability. In this environment, real interest rates are likely to increase moderately at best. Adding political instability in many parts of the world, this should lead to sustained demand for the precious metal. For those reasons we expect a gold price of $1,350 at the end of 2017.
To sum up: gold is back in fashion. It has fully regained its role as a unique asset class, diversifying portfolios for periods of inflation and political turmoil. Due to the large primary market surplus, investor behavior and hence real interest rate development is the decisive price driver. Monetary policy will tighten only slowly, while inflation is likely to stay elevated. In addition, the persistently uncertain geopolitical environment works in gold’s favour. All things considered, real interest rates will remain low and gold will continue to attract investor capital in the foreseeable future.
Thomas Benedix is senior portfolio manager and commodity analyst at Union Investment
