“The Fed Can’t Print Gold”. Bank of America is confident: gold prices are set reach $3000 per ounce by the end of 2021, according to estimates published by experts Michael Widmer and Francisco Blanch. If the forecast might seem risky, it must be remembered that until a few years ago it was unthinkable to imagine the gold rate at today’s levels. The economic and financial tensions on a global scale in recent years, however, have triggered an extremely positive rally for metal, which according to the experts of the American bank is just at the beginning.
A look at the history of the gold prices
The gold prices in the last few days of April is around $1730 an ounce and $56,000 per kilo.
If we take the dollar currency as a reference, the gold price recorded its historical record in September 2011, when the price per ounce reached $1895 and the price per kilo far exceeded $60,000, to the delight of post-2008 investors. Since 2012, however, the prices had a correction that has persisted over the years.
Since the end of 2018, however, gold prices have very gradually increased concurrently with the introduction of expansionary monetary policy programs, first launched by the FED and the ECB in support of its economies.
The huge recession that broke out over the past 2 months due to Covid-19 has allowed the yellow metal to earn points. In the past few days, many investors have hoped to see gold break the 2011 record. Indeed, the trend seemed to be that.
The incredible forecast of Bank of America
Bank of America released estimates of gold predicting that the gold price rally has only just begun. In this case, the US business bank through its spokesman Michael Widmer, Bank of America’s Commodities Strategist, expects a peak of $3,000 per ounce by the end of 2021.
The main reason for this estimate is summarized in a sentence, which will probably remain in history on a par with the famous quote by John Pierpont Morgan, who said, “Gold is money, everything else is credit”.
“The Fed Can’t Print Gold.” – Michael Widmer
He noted that interest rates will remain low in the United States and the rest of the world for a long time, while central banks will try in every possible way to promote the growth of economies devastated by the Coronavirus and to fight inflation.
Widmer also added:
“With the sharp contraction in economic production, tax spending is increasing and central bank balance sheets are doubling, legal currencies may be under pressure. Investors will aim for gold. “
The correlation between gold and interest rates
Among the first factors influencing the gold price is the inverse correlation between gold and interest rates, especially the US ones. Gold is a very particular asset, given that it does not offer dividends or interest rates. It is therefore normal for investors to look carefully at gold when a currency recognizes negative or very low real interests. In contrast, gold tends to devalue when interest rates rise as investors opt for easy incomes. Given the current crisis caused by the Coronavirus – crisis for many worse than the one triggered by the bankruptcy of Lehman Brothers in 2008 – interest rates will inevitably remain negative for a long time (probably for years), as explained by the BofA report, doing evaluate the ingot. Twists are not excluded.