Bank of America Corp. raised its 18-month gold-price target to $3,000 an ounce — more than 50% above the existing price record — in a report titled “The Fed can’t print gold.”
At the time of writing this article (2020-04-28, 12:00, UTC+1), gold is priced at 1713 USD per ounce (approx. 16 937 SEK). If the price of gold were to reach the price levels estimated by the analysts at Bank of America, it would mean a price increase of 75%! The reason: “The Fed can’t print gold.”
In a recent report, Bank of America Corp. raised its 18-month gold-price target to $3000 an ounce in a report titled ‘the Fed can’t print gold’ (1) As economic output contracts sharply, fiscal outlays surge, and central bank balance sheets double, fiat currencies could come under pressure.
The bullish outlook for gold (increased now to $3000 from 2000$ previously) is based on several factors such as the possibility of a deep recession due to the Covid-19 lockdown and the sharp contraction of the US economy. Gold, however, is expected to retain its crown as the ‘the ultimate store of value’
As per Bank of America’s Michael Widmer: ‘’Another important point to remember is that, just as central banks are socializing risk in financial markets, governments are increasing their spending like never before during peacetime. Investment demand has correlated strongly with gold prices in recent years, and we expect precisely this group of buyers to drive gold prices higher.’’
It is unlikely to be a straight line, but rather gold would have to wrestle with a strong US dollar and reduced demand from India and China. However, that shouldn’t stop gold from hitting 3000$ in 18 months, writes Widmer.
Gold has a history of holding its value. Unlike paper currency, coins, or other assets, gold has maintained its value throughout the ages. People see gold as an asset to keep int the family and pass on their wealth, from one generation to another.
Gold also acts as a hedge for investors who seek to diversify their portfolio and be an effective hedge against inflation.
The new coronavirus has not affected only humans, but also the global economy. In many places in the world, countries have been locked down and/or people are self-isolating, effectively reducing economic activity drastically. Several central banks and governments across the world have introduced stimulus measures to support jobs, incomes, businesses, and other sectors that have been affected. Whether the fiscal policy will be helpful or not, or to what extent, remains to be seen. However, it could likely lead to an increase in inflation.
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