Gold has broken a critical support level, but there is not much downside left, said Alain Corbani, portfolio manager of Finance SA, who forecasts $2,500 an ounce for gold’s upside target.
The metal will be caught between conflicting macroeconomic forces next year: slightly higher negative real interest rates, but a weakening U.S. dollar. While gold has a negative correlation with negative real rates, ultimately, the dollar will prevail as the dominant driver of gold during this current phase of the commodity cycle.
“The next phase of this bull cycle will rely on a lower U.S. dollar and this is really the main, key factor that will allow the price of gold to move much higher,” he said.
Historically, real interest rates have held the strongest, most consistent inverse relationship with gold, Corbani said, but sometimes, the dollar can take precedence in driving gold.
“In a bull cycle, you have at least two phases. The first one is based on lower real rates. The second phase usually happens with the lower currency, and we are in that phase,” he said.