Analysts at Bank of America anticipate that gold prices might rise sharply over the next 12 to 18 months, with estimations as high as $3,000 per ounce. They do admit that the way the market is currently moving may not always sustain this pricing point, though.
BofA clarifies that higher non-commercial demand is necessary to achieve $3,000 as well. They think that a rate reduction by the Federal Reserve would set this off, resulting in inflows into ETFs that are physically backed by gold and increased trading activity.
Purchases by central banks are another important element. “Ongoing central bank purchases are also important, and a push to reduce the share of USD in foreign exchange portfolios will likely prompt more central bank gold buying,” writes the Bank of America.
Gold’s position as a reliable long-term value store, inflation hedge, and portfolio diversifier is what’s causing this change.
The BofA model takes into account a number of variables, including as jewelry demand, recycled gold, and mine output. They must, however, also account for investment demand in order to forecast a market price that is balanced. The average price per ounce for non-commercial purchases is $2,200 as of right now. A substantial rise might drive costs up to $3,000.
A new World Gold Council study revealing central banks’ intention to buy more gold is highlighted in the paper. This is consistent with the mounting worries about the fragility of the US Treasury market, which may lead to central banks and individual investors diversifying their portfolios even further into gold.
Although that is not BofA’s basic scenario, they do recognize the possibility of a Treasury market breakdown. “Under this scenario, gold may fall initially on broad liquidations but should then gain,” they say.
