Gold prices could soon rise to $2,000 an ounce from today’s levels of a little over $1,730 provided the Federal Reserve rolls out a fresh round of stimulus measures, said Barrick Gold CEO Jamie Sokalsky.
The Federal Reserve is holding a two-day monetary policy meeting this week, and dismal jobs data and other lackluster economic indicators have many currency and gold investors betting the Fed will roll out a third round of quantitative easing (QE) to kick-start recovery.
Under quantitative easing, the Fed buys assets such as Treasury holdings or mortgage-backed securities held by banks, injecting the economy full of fresh liquidity in a way that pushes down interest rates to encourage investing and hiring.
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Such accommodative policies tend to weaken the dollar by design, which sends the greenback’s traditional hedge, gold, rising.
“Gold could definitely surpass previous highs and go above $2,000 and even higher in the next year,” Sokalsky told CNBC.
While gold tends to rise when U.S. monetary policy loosens, stocks in the companies that mine the metal often lag, and despite the gains that gold bouillon has posted, mining companies have yet to catch up.
The sector, Sokalsky said, needs to exercise greater discipline when it comes to capital spending.
“We can’t just rely on gold prices to drive our earnings,” he also told CNBC.
The Fed has already rolled out two rounds of QE since the 2008 financial collapse, pumping a combined $2.3 trillion into the economy to spur recovery.
Many investors feel the weak August jobs report that showed the economy picked up a scant 96,000 jobs served as the tipping point that will nudge the Fed towards a third round of QE3.
Uncertainty out of Europe is pressuring gold upward as well. The German Constitutional Court Wednesday voted in favor of ratifying the eurozone’s bailout fund with the condition that the German parliament have veto powers over any increases in the fund, Reuters reported.
“More and more people are gravitating toward the metal in anticipation of events over the next 48 hours,” Adam Klopfenstein, senior market strategist at Archer Financial Services in Chicago, told Bloomberg.
“The market is already pricing in a QE3 … .”
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