The price of gold has risen 28% since the start of 2020, spurred by the coronavirus pandemic, but it is difficult to predict just how much higher it could go in the coming months and beyond.

Gold was priced at US$1,950.85 per ounce as of Sept. 18, jumping from US$1,520.55/oz at the start of 2020. Most analysts expect the pandemic and its economic fallout to further buoy the precious metal, but price expectations begin to diverge markedly as they look further ahead. Though macroeconomic conditions appear likely to remain fundamentally supportive for demand in the short term, supply is set to expand more quickly than in previous years.

Bank of America and VTB Capital outlined expectations in August that the gold price will hit US$3,000/oz in 2022. The Bank of America and VTB Capital analysts cited persistent negative real interest rates and inflationary pressures as well as U.S. dollar weakness arising from the pandemic.

Others have been more circumspect about the pricing outlook. Fitch Solutions recently estimated that gold will average US$1,850/oz in 2020 and 2021 then fall to US$1,700/oz in 2022, US$1,650/oz in 2023 and US$1,620/oz in 2024 as mined supply rises. The analytics provider has a "neutral" view on the precious metal's long-term price prospects as easing geopolitical uncertainty balances rising central bank demand.

James Steel, chief precious metals analyst with HSBC, expects gold to be well supported into 2021 on the back of "the perceived need for a 'safe haven' even in the event of economic recovery," according to a Sept. 14 note.

Prices could be curbed by any measurable good news that promotes 'risk-on' investor behavior, Steel cautioned, noting that promising economic data and hopes of a coronavirus vaccine could rein prices back over the coming months.

Debt and liquidity

A ninth consecutive month of inflows to gold exchange-traded funds in August drove the price of the precious metal to a record high of US$2,067.15/oz as investors sought low-risk returns, according to World Gold Council data. The 39 tonnes of inflows in August were nevertheless over four times lower than the 166 tonnes seen in July as demand waned from Europe.

The factors that have driven gold up this year are still present, but to a lesser extent, analyst Ross Norman told S&P Global Market Intelligence. "Gold thrives on several factors being present, and virtually all of them have been present in bucketfuls this year: falling government bond yields, dollar weakness, extreme stimulus packages and high levels of geopolitical uncertainty." Norman is an independent industry analyst and former CEO of bullion dealer Sharps Pixley.

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"While the recent gold price rally was justified by the quicker than we anticipated weakening of [the U.S. dollar] and the rise in inflation expectations, we now expect deeper negative real rates to expedite the exodus from money market funds to gold, further propelling prices," VTB Capital analysts wrote in an Aug. 24 note.

Supply

Mine production is set to rebound over the coming years as higher prices and mergers between major mining companies support supply, despite a decline in the mineable reserves of leading producers, according to Market Intelligence's Metals and Mining Research team.

Fitch forecast that global production will rise by over a quarter to 133 million ounces by 2029 from 106 Moz in 2020 as project development picks up. It expects output to grow at an average of 2.5% per annum through the 2020s as Russia overtakes China as the world's largest national producer.

"Regardless of the heights the gold price will stabilize at, supply is expected to get back to increasing again in 2021," Market Intelligence research analyst Christopher Galbraith said. "That being said, those increases in supply were expected to come online with a much lower gold price, having been in the works for several years already.

"If the gold price is going to those heights [of up to US$3,000/oz], yes I expect there will be more coming out of the woodwork, whether older, uneconomic projects or inspiring some confidence in exploration to find new discoveries."

The pandemic nevertheless continues to pose risks to supply, particularly as winter brings fears of further infections. Russia's largest gold producer, PJSC Polyus, recently warned that disruption caused by an outbreak at its flagship Olimpiada mine in Siberia over the summer could weigh on production as far ahead as 2022 and could delay investments.

Best bets

Polyus is the lowest-cost producer among mining companies with large market caps and has the most attractive long-term growth profile, according to UBS analysts, with Barrick Gold Corp. and Newcrest Mining Ltd. rounding out their top three picks. Polyus stands out for its ongoing development of one of the largest untapped deposits in the world, Sukhoi Log, which is scheduled to begin production in 2026.

VTB Capital's analysts prefer Russia's second-largest gold producer, Polymetal International PLC, as a top pick and expect a total return of 96% from the group's shares over the next 12 months.

Conversely, analyst with Moscow brokerage BCS Global Markets wrote in August that they see only limited further upside for Russian gold stocks. At the same time, the analysts raised their average gold price forecasts to US$1,900/oz in 2020 and US$2,090/oz in 2021, up 12% and 20%, respectively, from previous forecasts. Further waves of the coronavirus and trade tensions between the U.S. and China could still leave room for further upside, they said.

"Typically, September is the best month of the year for price increases, but 2020 may be different," Norman said. "We see further sideways tracking with the market supported by economic uncertainty over the virus, uncertainty over the U.S. election and ongoing stimulus packages but lacking the rather unhelpful speculation to drive it to fresh highs. In short, we see ongoing consolidation around current levels."