How gold prices could surge to record high, even as stocks climb: RBC - Business Insider

RBC strategist Christopher Louney says investor need to recognize that gold and stocks are likely to rise together in the coming months — something that's rarely been true in the past.Louney says that could take gold to record highs. He says the combination of low interest rates and enormous economic stimulus has been good for both gold and stocks — and notes that even if stocks continue to rally, elevated uncertainty should help gold as well.Even if the post-coronavirus recovery is more difficult than he expects, gold prices are also likely to obliterate their all-time highs next year, he predicts.Visit Business Insider's homepage for more stories.

When stocks go way down, gold prices shoot up. It's one of those market rules everybody knows — but it might be ancient history now.RBC commodity strategist Christopher Louney says the forces shaping the market today — a combination of multi-trillion dollar economic stimulus, low interest rates, and enormous uncertainty — mean that gold prices should keep rising even if stocks continue their furious rally from the last six weeks.“The same policies that are meant to stimulate economic growth are simultaneously stimulating gold too, but from a different angle,” he wrote in a note to clients. “During a crisis like this, gold can gain alongside equities as economics begin to recover, even while it simultaneously serves as a means to hedge against embedded risks.”He adds that all of that remains true even if there is little sign of inflation in 2020 or 2021. That's also unusual since investors often buy gold to hedge their portfolios against potential increases in inflation. But even without that increase, further monetary easing would probably push gold prices up.

Even though shoppers aren't buying much gold jewelry these days, he adds, it looks like ultra-low interest rates are here to stay, and that also supports gold prices.While investors who doubt gold's value point out the metal doesn't yield anything, unlike stocks and bonds, Louney says that's less of an obstacle when bond payments are historically low and companies are slashing their dividends to save money.Daily gold futures have soared 34% over the last year and are currently trading at about $1,700 per ounce. Their highest prices ever came in 2011 and 2012 as investors worried that government debt crises in the US and Europe would lead to runaway inflation.That's been great for gold-focused ETFs like the SPDR Gold Shares and for gold producers like Newmont Mining.

Louney focuses on average quarterly prices in his note, saying he thinks a long period of high prices is more likely than dramatic spikes. His base case calls for a price of $1,739 over the first quarter of 2021, rivaling the peaks of 2011 and 2012. That's up 9% from the first-quarter average of $1,596 an ounce.“Elevated prices that manage to overtake quarterly average records seem likely,” he says.

Commodities strategist Christopher Louney says the price of gold could hit record highs in the coming months even if stocks keep rallying.

RBC Capital Markets

Louney says there's now a 50% probability of that scenario and a 40% chance of an even more dramatic series of events where the recovery from the coronavirus lockdowns disappoints investors and gold continues to soar.Under those conditions, the quarterly price would reach $2,012 in the first quarter of next year. That's 26% higher than the recent average. In fact that three-month average would smash gold's single-day high of $1,918, set in August 2011.

That, however, would bring back the more traditional pattern where gold rises as stocks fall.“To hit our high scenarios we would likely need to see another deep and recurrent breakdown in markets,” he wrote.The third option, would have a stronger- and faster-than-expected recovery. While that would push gold prices down, he thinks the chances of that are decreasing and the chances of a bigger rally are becoming more likely.But in either of his main scenarios, the combination of uncertainty and additional economic stimulus is good for gold — the question is whether that stimulus works or not.

“What's key for gold's relationship with equities and arguably gold's potential to swing between our scenarios, is that the same stimulus that can pump up equity markets, can pump up gold as well,” he wrote.