The gold price moved sideways this week, trading at just under $1,600 an ounce, continuing the downward trend from the metal’s 2012 peak at the end of February. However, Ronald-Peter Stoeferle of Erste Group Research thinks it may be about to make another major upwards move.
The reasons are twofold. First there’s the inflationary increase in the monetary base since the start of the financial crisis and secondly “financial repression” (negative interest rates) is increasingly being seen as part of the solution. He thinks the price could rise to an eye-popping $8,300 per ounce.
Stoeferle notes that central bankers have ramped up their purchases of gold. Indeed, last year they bought more gold than at any time during the 1960s. He notes that they have a habit of making the wrong choices – most obviously in the case of the Bank of England’s decision to sell gold in 1999.
However, he points out that the major buyers so far are emerging-market central banks, including India and China. They are buying gold in an attempt to keep pace with their increasing (and devaluing) reserves of paper currencies, such as the dollar. In the longer term he foresees a major country, such as China, abandoning the dollar altogether to create a gold-backed currency.