Ed Moy, chief market strategist at Valaurum, pointed out that with premiums people are already paying US$2,000 to US$2,100 for an ounce of gold.
The gold price is back above the US$1,800 per ounce mark, but many market watchers are still waiting to see if it will return to the heights it reached last summer.
Speaking to the Investing News Network, Ed Moy, chief market strategist at Valaurum, said he expects the yellow metal to end up somewhere between US$2,000 and US$2,100 by the end of the year.
Moy, who was director of the US Mint from 2006 to 2011, explained that there’s a big disconnect right now between the price of gold and demand for physical gold.
He noted that sales are so strong at mints around the world that some can’t meet demand. This has led to much higher premiums, with major gold retailers selling gold ounces for US$2,000 to US$2,100.
“So even though the spot price is well below that, to me the real price of gold is what the market is willing to pay for it — and they’re willing to pay up to US$2,100,” said Moy.
Speaking about the main factors he watches when it comes to gold, Moy said that the metal’s long-term fundamentals are being driven partially by the risk of inflation. In his view, the risk of inflation in the near, mid and long term is “very substantial” because of the dramatic increase in money supply seen recently.
“It’s the largest growth in US money supply in our entire history, and the only reason why we’re not seeing inflation is (that) the other part of inflation besides the money supply is the velocity of money — how often that one piece of currency is used. Right now the velocity is very low,” Moy said.
Uncertainty over how the economy will recover is another key driver for gold, and Moy noted that the US government and private sector have different opinions on how it will play out.
“Until the risk of inflation is significantly reduced and until there’s more clarity over how the economy will recover, right now both of those factors are playing well for gold in the long term,” he said.
Watch the video above for more from Moy on what’s going on in the gold market.
Don’t forget to follow us @INN_Resource for real-time updates!
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.