Gold can hit $7000/oz; buy the dips and hold for the long-term: Analysts

Despite the dip seen on Thursday, analysts suggest gold continues to be a reliable long-term portfolio anchor, rather than a short-term trade.

Gold prices have increased 73 per cent in a year to cost more than $4,800 an ounce (oz) in international markets and they may rise another 46 per cent to top $7,000, according to analysts.

 

The price surge is driven by geopolitical uncertainty, structurally higher fiscal deficits, central bank demand, and a supportive real interest rate environment, said Apurva Sheth, head of market perspectives and research at SAMCO Securities.

 

Prices dipped on Thursday but the metal is a reliable long-term portfolio anchor, rather than a short-term trade. “Looking ahead, while interim consolidations are natural after a strong run-up, the broader setup suggests gold remains well-positioned over the coming years,” he said. 

 

 

“Based on Fibonacci extension analysis, the next major target zone near $7,040 indicates further upside potential over the next two to three years as the cycle progresses. Corresponding levels on the MCX would be around Rs 2.3 lakh per oz if the rupee remains stable around the current levels,” Sheth said, referring to a technical tool used by traders to predict future price targets.

 

Christopher Wood, global head of equity strategy at Jefferies, expects the rally to continue and gold prices to hit $6,600 per oz over months. 

 

In December 2002, Wood forecast gold prices to hit $3,400 per oz, calculating the number by adjusting the 1980 peak gold price of $850 per oz by the then 6.3 per cent annualised growth in personal income in the United States (US) since January 1980. “That gave a gold price target of $3,437 per oz,” he said. The price target was raised in January 2005 to $3,700/oz to reflect the growth in personal income.

 

In September 2007, Wood polished the methodology by using the growth in US disposable personal income per capita since January 1980 instead of total personal income. The target was again updated — to reflect the growth in disposable income per capita — to $4,200 per oz in March 2016 and $5,500 per oz in August 2020.

 

At the peak of the last secular bull market in gold in January 1980, the metal’s price was equivalent to 9.9 per cent of US disposable income per capita of $8,551.

 

“To reach 9.9 per cent of US disposable income per capita means gold should rise to $6,571. This means that a price of $6,600 per oz is now a reasonable target for gold at the peak of the current secular bull market,” Wood said in his weekly note to investors, GREED & fear. 

 

Gold and silver prices retreated at the bourses on Thursday after hitting a record high a day earlier. The drop was triggered by US President Donald Trump altering his proposal to impose additional tariffs on European Union countries over the Greenland issue.

 

Gold futures dropped by nearly 2 per cent at MCX, while silver plunged below Rs 3.20 lakh a kilogram.

 

MCX Gold maintains a strong bullish structure with higher-high, higher-low formations within a rising channel on the technical charts, said Ponmudi R, chief executive officer of Enrich Money,

 

“After testing highs around Rs 158,000 levels, prices have seen mild correction on profit-booking but continue to hold firmly above key supports. A breakout above Rs 158,000–Rs 160,000 could trigger the next leg higher toward Rs 165,000–Rs 170,000. The preferred buy-on-dips zone remains Rs 150,000–Rs 153,000 levels, keeping the medium-term bias decisively bullish,” Ponmundi said.