(Kitco News) – After years of receiving no love from retail investors as well as institutions, gold has been on a non-stop tear, setting record high after record high, and according to one bank, investors are now looking more closely at the yellow metal, which has become increasingly attractive as other traditional “safe haven” assets face mounting risks.
According to strategists at Bank of America, investors – which includes central banks – should rotate into gold as a form of wealth protection against stubborn inflation and debt debasement caused by endless fiat printing and government borrowing.
“Gold looks to be the last 'safe-haven' asset standing, incentivizing traders including central banks to increase exposure,” the strategists said in a Wednesday note.
With US debt expected to continue rising, the strategists warned that the Treasury supply faces risks, and higher interest rate payments as a share of GDP will make gold a sought-after asset over the next few years.
And it’s not just the U.S. that faces the prospect of rising spending. The analysts highlighted the recent report from the International Monetary Fund (IMF), which predicted that new spending could amount to 7%- 8% of global GDP annually by 2030.
“Ultimately, something has to give: if markets become reluctant to absorb all the debt and volatility increases, gold may be the last perceived safe-haven asset standing,” they said. “Central banks, in particular, could further diversify their currency reserves.”
Amid the various promises and talking points repeated by U.S. Presidential candidates Donald Trump and Kamala Harris, neither has addressed the rising debt level or prioritized fiscal discipline and moderating government spending, which the analysts speculated will lead to the national debt hitting a record high as a share of the economy within the next three years.
“In fact, the tax and spending plans of Vice President Kamala Harris and former President Donald Trump would likely further increase deficits and debt above levels projected under current law: under the central estimate, Vice President Harris's plan would increase the debt by $3.50 trillion through 2035, while President Trump's plan would raise it by $7.50 trillion,” they highlighted.
“The Committee for a Responsible Federal Budget notes that the national debt is projected to reach a new record high as a share of the economy only three years from now, well within the next presidential term, pushing up interest rate payments as a share of GDP,” they said. “In turn, this makes gold an attractive asset, so we reaffirm our $3,000/oz target,” an increase of more than 10% from gold’s current price of $2,715/oz.
“Indeed, with lingering concerns over US funding needs and their impact on the US Treasury market, the yellow metal may become the ultimate perceived safe-haven asset,” they added.
While it has been climbing throughout 2024, gold has seen increased demand ever since the Federal Reserve initiated the latest easing cycle with a 50-basis point interest rate cut last month, rising 4.3% since the cut was implemented amid concerns around the ever-growing global spending and debt levels.
“Accompanying the first 50bp rate cut, inflation expectations have risen, meaning that 10-year real yields, usually the most significant gold price driver, kept declining through September,” the analysts noted. “That said, real rates have also pushed higher in the past couple of weeks. Yet, gold has held onto its gains. The takeaway from this is that lower rates are supportive for gold, while higher rates are not necessarily bearish.”
“In our view, this dynamic has been heavily influenced by the challenging fiscal backdrop, especially in the US, which makes gold an increasingly attractive asset to hold,” they added. “Indeed, rising funding needs, debt servicing costs, and concerns over the sustainability of fiscal policy may well mean that gold prices could increase, if rates move up. This dynamic has played out periodically in recent months.”
Central Banks have been some of the most aggressive gold buyers, with Bank of America analysts noting that the yellow metal now constitutes 10% of central bank reserves, up from 3% a decade ago.
And the recent interest rate cut has finally enticed investors in the West back into the gold market, they noted.
“Western investors stepped in after holding back for a while as they waited for the Fed to kick-start the monetary easing cycle. Notably, non-monetary market participants have increased their exposure on both the physical and paper markets, and our contrarian analysis suggests the latter is not overbought,” they said. “Still, markets are also now factoring in a no-landing scenario for the US and a slower pace of rate cuts. This may curtail the potential upside near-term. There is also a risk that gold may give back some of the recent gains, although we ultimately see prices supported at $2,000/oz.”
In the near term, it’s not just BofA analysts warning that a pullback in gold prices is possible as it hasn’t had a meaningful correction in some time. That said, the tailwinds that have propelled it higher remain, and with its price trading in uncharted territory, there’s no telling how high it could fly before the expected correction happens.
“Upon reviewing the gold chart on the 4-hour timeframe, we can see that gold has finally managed to break above the $2700 level, just as we anticipated in our previous analysis,” said TradingView analyst Arman Shaban. “Currently, it is consolidating above this level.”
| TIME | |||||
|---|---|---|---|---|---|
| Sydney | Tokyo | Ha Noi | HongKong | LonDon | NewYork |
| Prices By NTGOLD | ||
|---|---|---|
| We Sell | We Buy | |
| 37.5g ABC Luong Bar | ||
| 5,221.70 | 4,821.70 | |
| 1oz ABC Bullion Cast Bar | ||
| 4,340.80 | 3,960.80 | |
| 100g ABC Bullion Bar | ||
| 13,910.80 | 12,810.80 | |
| 1kg ABC Bullion Silver | ||
| 1,708.10 | 1,358.10 | |
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