The price of gold has had a remarkable performance so far this year, accumulating a rise of almost 17% from $1,970 per ounce at the beginning of the year to more than $2,300 currently. In this context, the geopolitical changes that are taking place mean that the prevailing uncertainty is keeping investors’ attention on the precious metal.
In the midst of the debate about his future journey from Bank of America (BofA) predicted that gold could reach US$3,000 in the next 12 to 18 months where expectations of changes in the monetary policies of the main central banks, the slow decline and control of inflation and the continued demand as active refuge, given the current geopolitical uncertainty, would be some of the causes that would explain its rise.
“We believe gold can reach $3,000 an ounce in the next 12-18 months, although current flows do not justify that price level for now.. Achieving this would require non-trade demand to increase from current levels, which in turn would require a reduction in the Fed rate. A flow towards physically backed ETFs and an increase in LBMA (London Bullion Market Association) clearing volumes would be an encouraging first sign. Continued purchases by central banks are also importantand a push to reduce the proportion of dollars in currency portfolios will likely lead to more gold purchases by central banks,” the BofA notes in its latest report.
They explain that Non-commercial gold purchases rose by around 3% in the first quarter of the year, enough to justify an average gold price of $2,200 an ounce to date, but if they continue to rise, gold could reach $3,000. In addition, the fact that central banks state that they plan to continue increasing their gold reserves is another factor to take into account, because these purchases can attract the interest of private investors.
But the BofA is not only on the side of the gold optimists since also the Sc strategistsheroes see a recovery of the metal in sight. This is what he says James Lukefund manager specialized in commodities: “geopolitical and fiscal fragility – trends directly linked to demographic and deglobalization trends – combine today to forge a path towards a sustained and multiple global boost in gold supplies.”
Gold: multiple reasons support the rise
“In our opinion, This could trigger one of the strongest bull markets since President Nixon closed the door on gold in November 1971.ending the convertibility of the US dollar into gold,” Luke bets. In this regard, he also points out that the hardening of tensions between the United States and China, and the sanctions imposed on Russia after the invasion of Ukraine in 2022, have driven the record purchases of gold by central banks as a reserve monetary asset, something that from a long-term perspective reflects well the evolution of global geopolitical and monetary/fiscal dynamics.
Above all, Luke points out, because the more than 1,000 tons of gold (20% of global demand) purchased by central banks in 2022 and 2023, a pace that continued in the first quarter of 2024, is potentially seismic and makes it seem entirely plausible that the current tense dynamic between developed and emerging countries, combined with the fiscal fragility that looms not only over the currency issued by the US, but over the entire developed economic bloc, could trigger a sustained movement towards gold.
“Put bluntly, the gold market is not large enough to absorb such a sustained movement without raising prices muchespecially if other global players also try to enter at more or less the same time,” says the manager.
He also highlights that the rise in gold prices will also have a lot to do with the growth in demand from Chinese investors as the shine of the real estate sector fades, but also the demand from Western investors. “Gold will continue to be a relevant hedge against the fiscal credibility of central banks and sovereign countries in general, which Western investors will use”he concludes.
One thing for investors to keep in mind is that, according to Luke, it is not an exaggeration to say that the gold mining sector could rise 50% and still look cheap, with a total market capitalization of $300. 000 million, the gold equity sector has been basically ignored, but they believe that is going to change. “If ever the time has come to include gold equities in a multi-year precious metals allocation, we believe it is now,” he explains.
