Bank of America sees potential for $2,000 gold but sticking with $1,700 forecast
(Kitco News) - Bank of America is holding steady with its call for gold prices to end the year at $1,700 an ounce, but there is a growing bullish case for the precious metal.
In a report published Thursday, Michael Widmer, precious metals analyst at BoA Securities, said that safe-haven demand and falling bond yields will continue to support prices. He added that if the coronavirus does turn into a global pandemic, then he could see gold prices pushing to $2,000 an ounce.
The comments come as gold prices have been unable to hold critical initial support at $1,650 an ounce. April gold futures last traded at $1,641.40 an ounce, relatively unchanged on the day.
However, he also said that the spreading virus could also turn into a significant headwind for gold when new infections peak.
“It is worth keeping in mind that our bullish base case outlook is not necessarily predicated on the Wuhan virus…,” he said. “Indeed, we believe that the yellow metal is supported by several structural, i.e., longer-term, dynamics.”
Instead of looking at the virus, Widmer said that they are paying more attention to global growth. He noted that a “de-globalization” movement is a significant factor that will weigh on global growth.
He added that the ongoing trade war between the U.S. and China continues to weigh on economic activity.
“The ongoing trade conflict between the U.S. and China has pushed global economic policy uncertainty to levels not seen in 30 years,” he said.
The global economic uncertainty will continue to support central banks’ accommodative monetary policy. In their recent forecasts, BoA economists continue to look for 10-year bond yields to end the year around 1.80%.
However, they added that “U.S. rates appear skewed to the downside.”
Widmer said that the recent decline in bond yields, with the 10-year benchmark falling to a new historic low at 1.29%, will continue to support gold prices.
Another factor that Widmer said will be bullish for gold is continued de-dollarization among emerging market central banks.
“Putting it all together, the yellow metal should remain supported,” he said.
On the downside, Widmer said that rising inflation could be a significant headwind for the yellow metal.
“The biggest risk to our bullish longer-term call is a round of fiscal stimulus which may ultimately bring about the reflation that central bankers have been unable to create in many regions, most notably Europe,” he said.