Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley, believes that inflation will rise, but that the gold price will fall. He thinks that’s not a contradiction, and other commodities, not gold, are set to perform best in the bank’s central scenario.
“Morgan Stanley’s economists forecast US inflation to rise a little over 2% over the next two years. So this is hardly the runaway type of scenario for inflation that gold would seem best suited for.”
“Gold is an asset where the narrative matters. In 2021, the pandemic looks set to get better. Economic data is improving. Politics have become calmer. And interest rates are starting to rise.”
“Gold scores poorly on the more quantitative, cross-asset approaches that my team runs. The yield on gold is low, especially relative to other commodities. Its valuation isn’t particularly attractive. The price momentum is poor, which is to say that commodities that are falling often tend to keep falling. And current economic data, which is improving, has often meant gold underperforms other assets.”
“As for gold, we forecast a price a little under $1,800/oz. by year-end; implying further declines from current levels even as inflation rises.”