Bank of America Predicts All-Time High for Gold in 2020

Strategist Paul Ciana cites numerous factors for his forecast, including COVID-19 uncertainty, international trade tensions, the upcoming election, and more.

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Having extended its spectacular performance from the second half of 2019 due to a global pandemic over the past few months, gold is now up roughly 16% since the start of the year, touching $1,779 on Wednesday for the first time since October 2012. And, according to a recent note by Bank of America, the trend is slated to continue, as global uncertainty continues to rise.

In the note, Bank of America Chief Global FICC Technical Strategist Paul Ciana explained why the metal is primed to keep testing the 2012 highs in the $1,798-$1,805 range this week and possibly surpass them. If the metal indeed breaks past $1,800, Ciana pegs the all-time high of $1,920 as the next price target to look out for.

As Ciana noted, the end of Q2 marked an eight-week-long uptrend for gold, adding that technicals point to $1,900 in Q3 should the markets continue to behave in similar fashion. Furthermore, Ciana said that gold is already riding an upwards wave towards $2,000, stating that a range of $2,114-$2,296 is a realistic scenario.

Speaking about the reasons for his bullish prediction, the analyst cited a rise in uncertainty amid reports of new virus cases breaking out in the U.S. This has subdued expectations of swift economic recovery, which were already scarce among both market watchers and Federal Reserve officials. Perhaps most importantly, these concerns have flared up international trade tensions, which were a major talking point throughout 2019 and allowed gold to inch ever higher throughout the year.

Renewed concerns over another outbreak prompted White House trade advisor Peter Navarro to suggest that there might not be any trade deal with China, a statement that would be a massively powerful gold price driver on its own. However, latest reports have shown that the White House is also eyeing tariffs of up to 100% on $3.1 billion of goods from several of Europe’s top economies. While the Trump administration previously hinted towards a possible reassessment of trade relations with Europe, these details have materialized concerns over a negative impact on the domestic and global economy.

Along with these reasons, Ciana also said that the uncertainty surrounding the upcoming U.S. election should help push gold prices higher, an opinion shared by many other experts. In an interview with CNBC, HYCM Chief Currency Analyst Giles Coghlan voiced similar ideas as to where gold is heading, stating that volatility is likely to dominate the markets over the next few weeks.

Predicting a rise in both gold and silver in the medium-term, Coghlan took note that high-net-worth individuals have been bolstering their portfolios with gold as uncertainty rises from several angles. And while Coghlan said that an equity sell-off similar to the one in March could again affect gold, the analyst noted that it would probably not bring the metal below $1,680 while also allowing for an influx of new buyers.

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Inflation Is Much More Likely Today Than Following 2008

Despite fears in 2008 that Quantitative Easing would debase the dollar, they were never realized. Here’s why one expert believes this time could be different.

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In a recent analysis, FXEmpire’s Arkadiusz Sieron contrasted the financial crisis of 2008 to the one we are facing now, along with the Federal Reserve’s response to each, to see if a major spike in inflation could be around the corner. Despite prevalent fears in 2008 that the Fed-driven quantitative easing would debase the dollar or possibly even usher in hyperinflation, the greenback managed to stay afloat and maintain its position.

As Sieron points out, however, the nature of the previous crisis differed significantly from the pandemic’s post-effects. In 2008, banks were the primary beneficiary of the monetary stimulus, as the crisis was a financial one from the ground-up. The Fed printed bank reserves instead of actual money in order to stimulate banks, the former being a kind of inter-bank currency that allows banks to lend more.

To Sieron, it’s clear why the environment from 2008 didn’t result in inflation. Debtors were deleveraging on a great scale, even to the point of the growth value of credit supply going into negative territory for a while, as American households weren’t particularly keen on taking out loans. Having just been destabilized, the banks weren’t keen on acting as the creditors, either.

Now, the situation is a starkly different one. Besides the unprecedented scope of money printed into the economy, the main purpose of the stimulus is to boost various businesses that have suffered as a result of the crisis. As opposed to 2008, lenders are being encouraged to issue loans to a wide array of debtors, be they consumers, businesses or banks. The Term Asset-Backed Securities Loan Facility and the newly-created Main Street Lending Program are both meant to funnel money to a diverse array of clients in order to revitalize the economy.

The effects of these programs and the differing nature of the crises can already be observed. Demand for loans from business owners is soaring, and banks are being urged to meet it, as shown by the acceleration of the pace of growth of credit and money supply between January and April.

While Sieron doesn’t overly subscribe to the idea of hyperinflation, he points out that gold will nonetheless do well should a milder form of inflation grip the financial system. Stagflation, a combination of low growth and a spike in consumer prices, appears to be the most likely scenario, especially considering the contracting growth rate prior to the pandemic, and it is one in which gold has historically done well in. And, as has frequently been noted, the flip side is just as bullish for the metal, as a deflationary hit to the system would create another crisis and further demand for safe havens.