Bank of America expects gold price of $3,000

Bank of America has raised its price target on gold by more than 50% to $3,000 per troy ounce. In a new report titled 'The Fed can't print Gold' Analysts at the bank write that the precious metal will benefit from unprecedented fiscal and monetary stimulus. Earlier, the bank raised its price target to $2,000, but due to the size of all the stimulus, the gold price could rise even further.

For this year, Bank of America expects a gold price of an average of $1,695 per troy ounce. For 2021, the bank foresees an average price of $2,063, with the price reaching $3,000 within eighteen months. Analysts at the bank expect the old record of $1,921.17 set in September 2011 to be easily broken because the economic situation is now much worse. From the report:

"The size of major central bank balance sheets has remained stable at around 25% of GDP over the past decade, as has the price of gold. As economic output shrinks sharply, fiscal spending rises, and central banks' balance sheets double, currencies could come under pressure. Investors will then focus on gold. We then make a prediction for the market value and now predict an average gold price of $1,695 in 2020 and $2,063 in 2021."

Of course, Bank of America is hedging its price target for gold. Despite all the stimulus, the precious metal could also face headwinds from a stronger dollar exchange rate and decreasing volatility in financial markets. Decreasing demand for gold in key markets such as China and India may also impede the rise in Gold price brake. Due to the price increase, demand from Asia has decreased, while investors in Western countries are queuing up to buy gold.

Gold is among the best investments this year (Source: Bank of America)

Central banks buy gold, but also continue to stimulate (Source: Bank of America)

The coronavirus triggered the biggest monetary stimulus since 2008 (Source: Bank of America)

Goldman Sachs also positive on gold

A month ago, Goldman Sachs already gave a Buy rating for gold. The bank expects that all the monetary stimulus will lead to a flight to gold if the 'currency of last resort'. Investors expect the proverbial 'printing press' to undermine the value of money, just as it did during the previous crisis in 2008. Commodity analyst Jeffrey Currie predicts that the gold price will reach $1,800 per troy ounce within twelve months.

"We have long said that gold is the currency of last resort. Gold acts as a hedge against currency depreciation when policymakers intervene to absorb economic shocks."

Central banks have announced unprecedented stimulus measures this year. The Federal Reserve will buy unlimited government bonds, while the ECB will €750 billion in bonds from the market. This is in addition to the ECB's previously announced purchase programme of €120 billion per month. As a result of these asset purchase programmes, the balance sheet total of central banks will rise even faster than after the 2008 crisis. Even then, this was accompanied by a huge increase in the price of gold.

This contribution was made from Geotrendlines