Gold drifts sideways in early trading
Goldman sees “material upside” for gold based on “undervaluation and low allocation”

(USAGOLD – 7/9/21) – Gold drifted sideways in early trading as bond yields inched higher and the dollar lost ground. It is down $1 on the day at $1803. Silver is up 6¢ at $26.05. In general, financial markets reflect a cautious tone with mixed economic results surfacing in China, Europe, and the United States over the past few days – signs of sluggishness combined with rising inflation. Goldman Sachs says that the gold market currently might be sending a false signal on what is occurring in the global economy.

“As a result of the liquidation, gold is now again pricing a Goldilocks scenario of moderate inflation and continued global recovery and is thus trading at a large discount to the current real rate,” it says in a paper authored by Mikhail Sprogis, the firm’s vice president for commodities research. “We estimate that the current gold price is consistent with a real rate of 0.1% vs. the -0.87% that is currently priced by the market…In a scenario where the global economic recovery does not play out as expected or inflation begins to move materially above expectations. We see material upside to gold given its undervaluation and low allocation from the investment community. Therefore, we think that gold may be a good strategic purchase here for portfolio managers looking to hedge against tail risks of macro volatility.” Sprogis says the recent upside move in gold is just the beginning and sticks with the firm’s forecast of $2000 gold in 2021.

(Source: Yahoo!News/Brian Sozzi/7-7-2021/Gold prices steamrolling toward $2000)

Chart of the Day

Central banks gold reserves survey
(Expected change in gold reserves next 12 months)

graphic from World Gold Council illustrating central bank intentions with respect for gold in 2021

Graphic courtesy of World Gold Council • • • Click to enlarge

Chart note: “Central banks,” says the World Gold Council, “continue to be positive on gold, with roughly the same number of central banks expected to buy gold compared to last year. Gold’s performance during periods of crisis has risen to become the top reason for central banks to hold gold.” I can remember a time – way back when – when nearly every mainstream media report on gold, particularly when the price was declining, included the reference “due to the threat of central bank gold sales.” According to this survey from the World Gold Council, 21% of the world’s central banks intend to add gold to their reserves this year and 68% intend hold on to what they’ve got.

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