Gold demand remains sluggish even though the price is holding above $ 1,800 an ounce. But according to Robert Minter, director at Aberdeen Standard Investments, sentiment could shift to bullish by the end of the month, when the Federal Reserve delays tapering on monthly bond purchases. Another reason could be new stimulus aimed at revitalizing the US labor market.
Minter said policymakers will most likely approve new measures to support the unemployed, especially since midterm elections will take place next year.
If that happens, the new stimulus will be on top of the recently approved $ 1.5 trillion infrastructure bill and the $ 3.5 trillion budget proposal. And although these numbers sound incredible, Minter said it is just a drop of what is needed.
But monetary policy and government spending are just two components for an upbeat gold sentiment. Rising inflation remains the key factor in precious metals.
Growing inflationary pressures will keep real interest rates in negative territory, even if the Fed raises nominal rates earlier than scheduled.
Thus, Minter said it is likely that gold will trade between $ 1,800 and $ 2,300 over the next 12 months.
Silver, on the other hand, will cost $ 24 - $ 30 an ounce.
Minter noted that even if the current economic recovery supports equity markets and bond yields, there is still room for gold in investors' portfolio.