Gold prices will nearly double to a record $3,000 as central banks fuel 'financial repression,' Bank of America says
- Gold will rally 80% over the next 18 months as central bank stimulus and economic turmoil drives record interest, Bank of America forecast in a Monday note.
- Monetary authorities are spending trillions of dollars to keep economies above water. The widespread spending will place incredible pressure on currencies, the bank's analysts said, in turn pushing investors to gold and its scarcity.
- There's still plenty of room for investors to pile into the metal, the bank added. Positioning "has been surprisingly weak" even after gold's late March rally, and a massive influx of capital will send prices soaring through the year.
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Central banks' stimulus frenzy amid the coronavirus pandemic will drive gold to a lofty record by October 2021, Bank of America projected in a note.
The firm's analysts lifted their 18-month price target for the precious metal to $3,000 per ounce from $2,000 on Monday, praising gold as "the ultimate store of value" amid the severe economic downturn. After an initial sell-off and subsequent rebound, the safe-haven asset sits near its highest level in eight years, but Bank of America reckons potent easing policies around the world will send its value 50% higher than its all-time record.
With an official recession looming, monetary authorities are poised to buy record amounts of financial assets and double the sizes of their balance sheets, the firm said. In March alone, G-7 central banks bought up nearly $1.4 trillion of assets to calm roiled markets. The policies will place outsized pressure on currencies, and, in turn, drive massive interest in gold and its scarcity.
"Beyond traditional gold supply and demand fundamentals, financial repression is back on an extraordinary scale," the team led by Michael Widmer said.
The average gold price in 2020 will reach $1,695 per ounce, the analysts added, before soaring demand pushes it to $2,063 the following year.
Gold traded at $1,670.73 per ounce as of 1:30 p.m. ET Tuesday, up 12% year-to-date.
There's also plenty of room for investors to pile into the metal, Bank of America said. Positioning "has been surprisingly weak" despite a rally through late March, and momentum investors "are only slightly long gold," the analysts wrote. Though prices have rebounded spectacularly, the bank's model suggests most capital has yet to follow the trend and rush into the asset.
Even if the metal is set to double in 18 months, challenges remain. The US dollar's strength can bite into gold's relative value, as will a downtrend in stock market volatility, the bank said. Demand will struggle to catch up in emerging markets as well, with jewelry demand set to plummet as consumers save cash. Even when the global economy recovers, weakened purchasing power in India and China will maintain pressure on the metal, the analysts added.
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