Gold’s Next Target Up to US$2,500/oz: ABC Refinery at RIU Sydney

THE CONFERENCE CALLER: The gold price has rallied 25 per cent from its 2022 lows and there is “plenty more” potential to drive it higher, delegates heard at the 2023 RIU Sydney Resources Round-up. By Ngaire McDiarmid

ABC Refinery global head institutional markets Nicholas Frappell told the conference he was not surprised gold was currently around the US$2,000 an ounce/A$3,000/oz mark and said the next targets were US$2,100/oz and $2,500/oz.

He said the four macro themes which were dominating 2023 – and would set the tone for 2024 – were banking sector stress, official sector gold buying, the US debt ceiling and Japan’s exit from yield curve control.

“All contain benefits for gold, whether it is market disruption, anxiety over the valuation of other assets or potential impacts on US growth,” he told the conference.

The closure of Silicon Valley Bank and rescue of Credit Suisse meant “investors mindful of risk started piling heavily into gold” in recent months.

In addition, central banks’ reserves have “risen hugely in the last few decades”, increasing circa 10-fold, Frappell said.

“Last year 1,136 metric tons of gold was purchased by the official sector, January and February of this year another 158t, which is a fairly good start to the year,” he said.

He said official sector purchases were not about rejecting the US dollar but portfolio diversification.

As for the US debt ceiling, “or the possibility of the wheels coming off,” it was less than a month away, Frappell said.

The idea that the US might default was not impossible but it was “unthinkable”, he said, adding the Federal Reserve was doing a lot to manage the process.

“If I can sum up what a debt ceiling crisis means is that even if it’s resolved and worked through, what you end up with is market volatility … and generally speaking I would take that as a positive for gold, vis-à-vis other assets,” he said.

The fourth macro theme was the Bank of Japan ending its long-running yield curve control strategy, that’s kept 10-year bond yields around zero, which was “probably good for gold” and “generally dollar negative”.

“The big number in US dollar gold is 2075 [an ounce] … we have to get through that level to really make progress,” Frappell said.

“There is plenty more contained in those four thematics that I mentioned that has the potential to drive gold significantly higher.”