Gold price to rise to $3,000, states Bank of America

Gold prices dropped on Tuesday as investors profit from 2020’s best-performing financial asset. Turmoil continues in the commodity and equity markets.  On the Comex market in NY, gold delivery for June, the busiest contract, decreased by $49.20 an ounce, or approximately 3% to $1,662.00. 

A week ago, gold futures topped at $1,788 an ounce, a seven-and-half year high last week. It was a result of central banks around the world pumping trillions of stimulus dollars into the financial markets to stop economies from falling.

In a report, the Bank of America raised its eighteen-month gold price target to $3,000 an ounce. They noted that the Federal Reserve can’t print gold.

Analysts compare it to the 2011 global financial crisis when gold prices peaked as high as $1,900 an ounce. They assume that investors will aim for gold.  

The bank expects bullion to average $1,695 an ounce over the course of 2020 and more than $2,000 next year but warned if any smooth return to financial markets and the dollar strengthens the prediction could be overly optimistic.

Weakened demand for jewelry in China and India could prevent further increases in the gold price. However, the bank added that beyond traditional fundamentals of gold supply and demand, financial repression has returned to an exceptional scale.

Weaker dollar reinforces the bullish potential of the metal

The economic impact that the health crisis will have on the world economy cannot be determined with certainty. The first signs, however, suggest that the consequences will be catastrophic for some countries. For example, in the United States, confinement measures have caused more than 22 million layoffs in the past four weeks. This completely eliminated all gains in the labor market since the Great Recession. With job destruction of this magnitude, the jobless rate could jump to 20% in the first half of the year. Thus, dragging the economy into a severe and perhaps unprecedented recession.

Against a bleak background, the Federal Reserve may continue to contrive to deploy unconventional stimulus measures in the short term. An ultra-expensive monetary policy by the Fed creates downside risks for the US dollar while reinforcing the bullish potential of gold.

Another factor that would continue to support the yellow metal in the medium term is the state of turbulence in the markets. During volatile and risk-averse periods, investors seek to protect their capital in the safety of gold, a quintessential safe-haven asset.