According to Bank of America’s commodity strategist Michael Widmer, the gold market is poised for significant gains, potentially reaching $3,000 per ounce within the next 12 to 18 months. In a recent report, Widmer outlined that the path to higher gold prices hinges on increased investment demand, which is contingent upon clear signals from the Federal Reserve indicating imminent interest rate cuts.
Widmer highlighted that a resurgence in non-commercial demand, coupled with inflows into physically-backed ETFs and increased LBMA clearing volumes, could propel gold prices upwards. He suggested that an average gold price of $2,500 per ounce for this year could be justified with a 20% rise in investment demand. However, current non-commercial purchases have only shown a modest 3% year-over-year increase as of Q1 2024, supporting an average price of $2,200 per ounce year-to-date.
Beyond US monetary policy, Bank of America identified rising bond yield volatility as another factor bolstering gold’s appeal as a reserve asset. The report underscored that central banks globally, led by China, are diversifying away from US dollars and Treasuries, with China significantly increasing its gold holdings while reducing its USD portfolio share.
Widmer emphasized China’s strategic moves in the market, noting a substantial increase in gold reserves and a notable decrease in US Treasury holdings over the past year. Despite highlighting potential risks in the US Treasury market due to escalating government debt and market liquidity challenges, Bank of America does not foresee an imminent breakdown but cautioned about increased macroeconomic uncertainty.
In conclusion, Bank of America anticipates that gold prices could initially face pressure from sharp rises in US interest rates but ultimately expects a shift towards gold as a safe-haven asset amid global economic uncertainties. The evolving relationship between gold and interest rates suggests that gold will remain a viable option for investors seeking stability in volatile markets.
