Gold Bars

  • Even as gold settles near all-time highs, one analyst sees the metal's rally continuing through the summer.
  • Spot gold leaped as high as $1,944.55 on Monday, setting a new intraday record amid investors' widespread push into safe-haven assets.
  • The metal's current momentum "will cross the $2,000-an-ounce mark" as investors brace for inflation to rise, Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank of Australia, said on Monday.
  • A high-inflation environment weighs on Treasury yields and, in turn, boosts the relative value of gold. Understanding how inflation will change "is really the key" to judging the gold rally's future, Dhar said on CNBC.
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Spot gold surged on Monday to a record intraday high, and analysts are already preparing for the precious metal to rally even further.

Prices leaped as high as $1,944.55 on Monday in early trading, beating the previous all-time record set in 2011. The popular hedge asset has ticked higher through the summer as investors look to protect against a near-term market tumble. Federal Reserve easing including near-zero rates, asset purchases, and liquidity injections boosted gold prices as well by raising the metal's relative value against the dollar.

The collection of bullish drivers could push prices up even higher into the fall, Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank of Australia, said Monday.

"We think the current momentum in the next few months will cross the $2,000 an ounce mark. The key question is how much does the rally increase after that," he said on CNBC's "Squawk Box."

Much of that momentum is fuelled by concerns of rising inflation, the analyst added. Markets are pricing in a steady rise in inflation due to the Fed's relief measures and multitrillion-dollar stimulus bills from Congress. Higher inflation weighs on real Treasury yields. Lower yields historically benefit gold, as the metal's holders no longer miss out on yields.

The "key story" behind gold's summer rally isn't falling nominal yields, Dhar said, but an increase in 10-year inflation expectations.

"That's really what's driven this recent leg up. Understanding how sustainable that is is really the key to unlocking whether this rally has more legs to run," he added.

Dhar sees gold's rally slowing above $2,000, with investors pausing on their buying activity until a new driver emerges. Yet he still sees a path for gold to leap higher. The Fed has paused on announcing new relief efforts since taking its nine credit facilities online. Gold can climb as high as $2,500 per ounce, Dhar said, but for that to happen, "we really need to see the US consider an option like, say, negative interest rates."

Investors likely shouldn't hold out hope for such an event. Central bank policymakers have repeatedly shut down the possibility of negative rates, and instead hinted at using yield-curve control and forward guidance if additional monetary policy is required. Still, officials see near-zero rates lasting through 2022, leaving gold bulls with an optimistic environment moving forward.

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