Gold: what does an econometric model tell us about prices?

Since the financial crisis gold prices have been mainly driven by a combination of five factors: Indian demand, Chinese demand, Central bank demand and Investment demand for gold (along with the macro scene in the US: yields, US dollar, economic outlook etc.). Our econometric model suggests that the price of gold now seems slightly undervalued following the correction under way since 7 August, when prices fell by almost 10% after hitting an all-time high of $2,075 intraday . The current climate of uncertainty could bring gold back to around $1,920-1,950 per ounce, i.e. a rise of 2% to 4% by the end of the year. However, we expect gold prices to fall further in 2021, despite the additional liquidity provided by central banks. The normalisation of gold ETFs and the expected slight rise in US long-term interest rates are likely to more than offset the expected depreciation of the DXY and the liquidity factor, bringing the gold price back towards $1,750 or even $1,700 per ounce at the end of 2021.