(Kitco News) - Although gold has had an impressive run so far in 2016, up about 24% year to date, analysts at Macquarie Research say the metal is still far from its 2011 peak, which when adjusted for inflation, would put gold at $2,000 an ounce.
“A record investment surge in 2016 has pulled gold out of the doldrums yet the price remains far below its 2011 high,” they wrote in a report released earlier in the week.
They attributed gold’s relative weakness to a stronger U.S. economy, in the form of a strong dollar and higher yields, as well as a lack of physical demand, among other factors.
“Our expectations for these suggest slow appreciation for the gold price is more likely than a spike higher,” they said.
Based on current prices, with December Comex gold last up $4.60 at $1,321.70 an ounce, the yellow metal still remains about 30% below its all-time high above $1,900 reached on September 6, 2011. “[A]nd even this year’s peak of $1,366/oz was 28% short,” the analysts explained.
“In real terms, adjusting for U.S. inflation, the shortfall is even larger. That 2011 high is worth over $2,000/oz in today’s money,” they added.
Why is gold “so weak?”
“The macroeconomic backdrop is less supportive, and this boils down to the fact the U.S. economy and economic outlook is not in the same dire straits that it was in 2011,” they said.
For this reason, they continued, the gold price as well as exchange-traded-fund holdings have not risen enough, albeit having grown by record or near-record levels this year.
The U.S. economic recovery seems to be underway, and the analysts pointed to the rise in the U.S. dollar as well as real bond yields as proof.
“Both the level of the U.S. dollar and U.S. real rates reflect greater optimism about the U.S. economy than there was in 2011/2012,” they said. “[W]hile markets remain sensitive to any signs of a U.S. recession, it is still far from most investors’ base case.”
Finally, the analysts noted that low physical gold demand is another contributing factor to keeping gold below its peak price, adding that a decline in central-bank buying has also had an impact.
By Sarah Benali of Kitco News; sbenali@kitco.com
